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ATO to scrutinise CGT relief eligibility

The legitimacy to claim capital gains tax (CGT) relief granted under the new super reform rules in regard to timing, as well as associated valuations, are likely to come under intense ATO scrutiny, an SMSF specialist law firm has said.

The new laws dictate an SMSF will be ineligible for CGT relief if it did not have segregated assets as at 9 November 2016 and transitioned to 100 per cent pension phase prior to this date. Further, any asset an SMSF has nominated to which CGT relief is to be applied must have been held from 9 November 2016 to just before 1 July 2017.

“I expect that will be an area where the ATO will come in and take a close look. If they’re auditing this CGT relief, which you expect they will do so in the next few years, then that would be one area they would be looking at,” DBA Lawyers special counsel Rebecca James told attendees at her firm’s recent seminar series.

“We’ve seen people come unstuck with that.”

According to James, asset valuations on which the CGT relief will be based is another element the ATO will be focusing on. To this end, she said equity valuations will be fairly standard, but contention may arise when property is involved.

“Typically the ATO does accept real estate agent appraisals for valuations of property, but where we’re getting to the pointy end of value and we’re getting close to the $1.6 [million cap] or we’re trying to argue that a property’s value has dropped, for example, they might be circumstances where we’d be more inclined to get the independent valuer’s report,” she said.

“We’ve already seen with small business CGT concessions that’s an area where the ATO looks at it really closely, challenges valuations, and we’ve seen some cases run in the AAT (Administrative Appeals Tribunal).

“So we can expect valuations around CGT relief and the $1.6 million retirement cap to be a hot area for audit and review for the ATO.”

She added this made it imperative for advisers to maintain impeccable fund records and to document properly how asset values had been substantiated.

“Making sure the client has signed off on every asset and fully understands the implications of applying the CGT relief [is important] so that in the future they don’t come back to the adviser and say they thought it applied to different assets and didn’t understand the implications,” she said.

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