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CGT relief requires good client knowledge

The choice to reset the cost base of an asset when applying for capital gains tax (CGT) relief requires SMSF advisers to understand how their clients think and behave when it comes to following through with their plans.

“Should the trustee reset the cost base for the fund?” SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said at the Tax Institute Superannuation Conference in Sydney last week.

“I know it’s a bit of an unknown unknown because many clients will say that they’re going to start a pension in two or three years’ time and they never do it, and they sell the asset in the meantime so they end up with a different result than what they intended.

“I’m going to give you the usual technical answer: it depends.

“But it really comes down to knowing your client well and the client being certain of what they’re going to do because if they don’t really know or understand what the impact of this is and then they sell the asset, they may end up with a slightly higher CGT tax bill than if they complied with their plan.”

Colley also warned advisers not to assume resetting the cost base for a particular asset would be based on the highest value during the financial year or other values the client suggested.

“I do have one client where when they were looking at their income that came into the super fund and the way in which the dividends were paid to the fund meant that it was better to choose different dates during the year, particularly between May and June, to reset the cost base because they ended up with a higher tax-free proportion in the fund than if they would’ve reset the cost at the highest value of that investment for that particular year,” he said.

“So while sometimes you might think the highest value may be better, in some cases, depending on how dividends are coming into the fund, it may be better to rest the cost base a little bit later.

“For the client that I saw, the super fund was tax exempt for the whole year simply because of that timing issue.”

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