SMSF advisers and trustees must be aware the capital gains tax (CGT) relief provisions contained in the super reforms do not apply to all assets the fund owns, a technical expert has said.
Speaking at the Institute of Public Accountants 2017 National Congress on the Gold Coast last month, SuperConcepts technical services executive manager Mark Ellem told delegates cash and fixed income products are not eligible for CGT relief and nor are traditional securities.
“The best example of a traditional security is debenture notes, floating notes where your return is based on interest rates and they go up and down in value depending on what interest rates are doing, unsecured loans, they’re traditional securities,” Ellem said.
“A gain or loss on a traditional security is not assessed under the CGT provisions – it’s on revenue account.
“So it’s not a capital gain or loss and you can’t reset the cost base because they don’t have a cost base. So have a look if you’ve got funds that invest in these interest-type securities.”
He noted in certain circumstances it was not as easy to determine if an asset is a traditional security just on the surface alone.
“We saw an asset that looked like a traditional security, but a lot of these items have class rulings. In this case we found a class ruling and it specifically said the asset was not a traditional security, therefore it came under the CGT provisions, therefore we could reset the cost base,” he said.
In addition to class rulings, advisers and their clients can also refer to product disclosure statements to help determine if an asset is a traditional security.
“Normally, but not always, the product disclosure statement will have a tax opinion in it about how a traditional security is assessed from an income perspective and also when it is sold,” Ellem noted.
“Even if it has that tax opinion, you should still see if there is a class ruling for the asset as well that is going to specifically say if it’s on revenue account or on capital account.”