Capital gains tax (CGT) relief available to SMSFs looking to comply with the newly imposed transfer balance cap will have to be applied on a case-by-case basis, creating further complexity for advisers and trustees in the preparation of fund accounts, a technical services manager has said.
“The answer in a lot of situations as to whether or not to apply the CGT relief is it depends. This adds to the process for you to get the 2016/17 financial accounts and returns finished and lodged and out the door and built,” SuperConcepts SMSF technical services executive manager Mark Ellem told the selfmanagedsuper SMSF Professionals Day 2017 in Melbourne on Friday.
“This is adding time to the process. Have you taken into account when you are putting together your processes for dealing with 2016/17 fund returns?”
Ellem used as an example the situation of whether to apply the CGT relief for a fund that has exempt current pension income (ECPI) being generated by a particular asset.
“What your client should do will depend on what the ECPI percentage will be in the year the asset is sold,” he noted.
“Will it be higher than the percentage in 2016/17? If it is, then the general rule of thumb is the trustees wouldn’t want to reset the cost base because they could get the entire game exempt.”
He pointed out the difficulty advisers face regarding the CGT relief is the inability to predict with certainty what trustees will do with their SMSF in the future.
To this end, he suggested advisers needed to have conversations with clients about their future intentions, such as when they are intending to sell a particular asset, when they are intending to retire, what their retirement balance is going to look like in the future, and what the probability is that the ECPI percentage in the future year will be higher or lower than in 2016/17.
“Remember these elections are irrevocable. You can’t get to a future year and say we shouldn’t have made that election back in 2016/17, let’s go back and amend the return,” he warned.
“That’s not going to happen.”
