Masterclass SMSF – CGT Relief – Capital Gains Tax Superannuation exemption when moving excess pension over $1.6 mill. pension account cap by 1 July 2017

MASTERCLASS SMSF – CGT Relief – Capital Gains Tax Superannuation exemption when moving excess pension over $1.6 mill. pension account cap by 1 July 2017

SMSF – CGT Relief – Capital Gains Tax Superannuation exemption when moving excess pension over $1.6 mill. pension account cap by 1 July 2017

If you have more than $1.6 million in superannuation pension phase, and/or a transition to retirement income stream (TRIS) and you wish to continue from 1 July this year, you must reduce the pension balance down to the $1.6 mill. Cap. This may cause Capital Gains Tax, but there is exemption relief in place. Here is an explanation from SMSF Advisor

Capital gains tax (CGT) relief

From 1 July 2017, the maximum amount a member can transfer from the taxable accumulation phase to the tax-free retirement (pension) phase will be limited by the new transfer balance cap (TBC) of $1.6 million (indexed). For pension balances in excess of this amount on that date, the member has the option to either:

  1. Withdraw the excess from the superannuation system; or
  2. Commute the excess back to the accumulation phase.

Also from 1 July, investment earnings and capital gains generated from transition to retirement income streams (TRIS) will no longer be tax free.

Transitional CGT relief – a special tax concession accessible between now and June 30 – is available to superannuation funds that have members affected by the new TBC, or pay TRISs that will lose the tax-exempt treatment of investment earnings.

Super funds where part of the fund’s investment return is a capital gain on individual assets will be impacted by the changes. These funds include self-managed superannuation funds (SMSFs), small APRA funds (SAFs), and public offer (retail) funds – including wrap accounts – and industry funds offering direct investments, i.e. shares and managed funds.

The CGT relief measure was introduced to discourage the mass selling of pension-supporting investments before 1 July 2017. The intent of the new rule is to provide CGT relief on the gains accrued before that date, so as not to disadvantage members who are required to commute a pension due to the new TBC, or are impacted by the TRIS tax changes. CGT relief preserves the tax exemption for these accrued capital gains on selected investments by resetting the cost base of those investments to their market value. 

For members who currently have more than $1.6 million in pension phase and choose option two (above) or have a TRIS, the legislation provides transitional CGT relief for assets owned by the fund on 9 November 2016 (being the date the legislation entered Parliament).

Importantly, CGT relief is not automatic – the trustee of a super fund must choose for the relief to apply for a CGT asset in the approved form.

For those assets that become taxable, i.e. that are transferred back to accumulation phase or support a TRIS, an irrevocable election can be made on an asset by asset basis to reset the CGT cost base to its market value, with the fund deemed to have sold and re-purchased the asset at that market value. This means the fund is only exposed to CGT on future growth in the asset value from that point.

CGT relief is quite complicated. Different rules apply depending on whether the fund currently uses the segregated or proportionate (unsegregated) method in determining its exempt current pension income (ECPI). Furthermore, from 1 July 2017, SMSFs and SAFs in some circumstances will no longer be able to use the segregated method in determining the ECPI….

What should I do now?

Important decisions must be made in the lead-up to 30 June. With only a few months to go, now is the time to consider whether claiming CGT relief on certain investments is worth pursuing… This choice will have a direct effect on the amount of income tax paid in future years.

And for several very detailed examples, READ MORE of the article

What are your thoughts? Start or continue the conversation here!

Call for free education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is FREE. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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Self-Managed Superannuation Service Providers in Australia. SuperBenefit will SET UP your SMSF and provide investment education for a better result. We take care of all your administration, accounting, ATO lodgement and audit of SMSFs, working with you and your advisors. If you want advice we can arrange one of our recommended advisors and accountants to meet with you, as we do not give advice, but take instruction only. Take control of your super, including property shares and other assets. Learn how to be your own advisor - make better decisions - by being mentored and coached to invest your own super wisely and strategically by qualified partners. Book to come to an event to find out more, or - Call us 0407 361 596, no obligation FREE strategy call.
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