SMSF trustees and practitioners looking to implement strategies to reduce a potential future Division 296 liability should act cautiously when trying to realise capital losses before the new impost commences, an SMSF legal specialist has noted.
DBA Lawyers special counsel Bryce Figot stated anyone looking to realise those losses would have to act in this financial year before the proposed new tax commenced on 1 July, but pointed out the nature and timing of asset sales was important.
“Should a taxpayer ever sell and then buy back the exact same asset just to realise a capital loss? Of course not. That is a wash sale. Have a look at ATO Taxation Ruling 2008/1,” Figot said during a recent webinar.
“Part IVA is unlikely to apply because it hinges off a defined term called ‘tax benefit’, which involves income tax, so it’s unlikely to apply to Division 296, but it could still capture that tax from a promoter penalty point of view, so don’t do wash sales, but you could still examine capital losses.”
He gave an example of an SMSF that held ANZ shares and sold them to buy NAB shares, pointing out this was unlikely to create issues if the transactions were consistent with the fund’s investment strategy.
“The dominant reason [for those actions] may be pursuant to the investment strategy because the fund was too heavily invested in ANZ and wanted to diversify as it was bearing too much non-systematic risk. I don’t think that’s going to ever cause you tax problems,” he added.
“In that circumstance, if you sell ANZ and buy back ANZ, that’s going to look like something bad. If you sell ANZ as part of an investment strategy to minimise and diversify risk and you buy NAB, that’s very different.”
He also highlighted the need for a fund to own shares for a full year before it qualified for the one-third capital gains tax discount, pointing out there was still confusion around this figure.
“If you buy on 30 June 2026 and sell on 30 June 2027, do you get the one-third discount. In other words, have you owned that for at least 12 months?” he said.
“According to the ATO in Taxation Determination 2002/10, buying on 30 June of one year and selling on 30 June of the other year does not cut the mustard.
“So the answer is no. You would have had to have purchased on 29 June 2026 and sold on 30 June 2027.”
