CGT relief narrow, complex

The capital gains tax (CGT) relief provisions in the superannuation reforms are unnecessarily complex and should have applied to all pension funds, according to an SMSF administrator.

Heffron SMSF Solutions co-founder and head of customer Meg Heffron said under the current rules, members were only eligible to apply for CGT relief if they were affected by either the transition-to-retirement pension no longer being eligible for a tax exemption or if they exceeded the $1.6 million transfer balance cap, in which case they would need to move the money to the accumulation phase.

“I think that was unnecessarily complicated. I think what they should’ve done is just said there’s a blanket CGT relief in place for any fund providing pensions,” Heffron told selfmanagedsuper.

“So you have weird situations where people rule themselves out of it accidentally. By making the rules the way they are, we just created a kind of ‘gotcha’ moment where you did something that seemed perfectly sane and normal but it ruled you out of the CGT relief.

“Even worse, people who had a mixture of pension and non-pension accounts on 9 November and they moved totally to pension phase later in the year, which is a common thing that happens, they would’ve found that they ruled themselves out of CGT relief too because they moved from a point of not being entirely in pension phase to entirely in pension phase,” she said, referring to the pre-commencement period starting on 9 November 2016.

She said the scope of the relief was too narrow to only include those who were currently affected by the $1.6 million cap. Consequently, this failed to consider a couple, for example, who had accumulated $1 million each in their SMSF.

While the super reforms would not affect them today, they would impact on them if one spouse or partner died and the surviving spouse inherited the additional $1 million and then had to divert it back to the accumulation phase and pay tax. They would miss out on CGT relief.

“Usually our tax law is complicated when you’re trying to very carefully target a concession to a particular group of people. The rules and regulations are making sure that other people don’t get it,” Heffron said.

“It’s funny because I was actually surprised that there was CGT relief at all. But you could’ve made it so much easier. If we’re going to be so super generous to provide any, I wonder why we made it complicated.”

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