Transitional capital gains tax (CGT) relief is temporary relief available to trustees of superannuation funds who might need to adjust their asset allocations to comply with the transfer balance cap rules, and transition-to-retirement income stream (TRIS) reforms were announced in the 2016 Federal Budget.
A key consideration in deciding whether to use the CGT cost base reset option is whether the fund’s tax-exempt proportion (i.e. average pension liabilities / total super fund liabilities) is expected to increase or decrease in the future.
If the tax-exempt proportion is likely to decrease in the future – for example, if a member commutes a large pension to meet the transfer balance cap – the fund will generally be better off applying
for CGT relief. That’s because it will reset the cost base to the current market value and lock in assessable gains while the tax-exempt proportion is high.
Conversely, if the tax-exempt proportion is likely to increase, such as when members of the fund are about to retire and commence pensions, it might be better not to apply for CGT relief because the tax-free proportion of the fund will be higher in the future.
Other points to note –
- If a super fund changes an asset from segregated to unsegregated before 30 June 2017, it will require an actuarial certificate for the current financial year. Some superannuation lawyers are therefore suggesting that any trustee minutes are dated as at 11:59pm on 30 June 2017.
- While the CGT relief rules are relatively flexible and can be used on an asset-by-asset basis, once you choose the reset option, the decision is irrevocable.
- If any member of a super fund has a total balance that exceeds $1.6 million (even if it is held in another super fund or accumulation account), the fund is precluded from using the segregated asset method. It must use the proportional method.
- Funds that wish to use the proportional method need to maintain at least one small accumulation account during the whole period between 9 November 2016 and 30 June 2017. This will ensure the fund doesn’t inadvertently become a segregated fund because it only has pension accounts.
- For super fund members who are at the TBC limit of $1.6 million on 30 June 2017, no further non-concessional contributions are permitted in subsequent years. Even if you are aged under 65, satisfy the work test, or your account balance falls below $1.6 million, no further non-concessional contributions can be made.
- You can’t apply CGT rollover relief to assets purchased after 9 November 2016.
For further information on your specific circumstances, please contact us.