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Superannuation Technical Update: CGT Relief-is it worth it? Apr 2017

For Superannuation Funds with members affected by the Transfer Balance Cap (TBC), the Government’s apology has arrived in the form of CGT Relief. But should all Funds look to claim CGT relief?

CGT Relief- what is it?

The Relief applies to Funds affected by the TBC and other pension changes – so in essence, funds with members who have fully commutable account based pensions in excess of $1,600,000, and funds with members in receipt of a Transition to Retirement Income Stream.

Funds have the ability to elect to apply the relief, and further, funds have the flexibility to select specific assets to apply relief towards. The relief essentially creates a deemed sale and buy back of the asset at its value at 30 June 2017 (for unsegregated funds). It will also reset the CGT acquisition date.

Care must be taken to also understand that, as a result of applying the relief, there may be a portion of the Fund that is supporting non-pension assets, and so this relief will likely give rise to a Capital Gain that is taxable. Further choice is available to defer this tax until the assets physical sale.

Funds with long held assets, property assets, or unlisted unit trusts (such as pre-99 Unit Trusts) may prima facie be in position to choose to apply this relief.

At TAG, we have a number of clients who still hold investments via a pre-99 Unit Trust. While the relief would not apply to the assets of the Trust, the relief actually would apply to the market value of the Trust’s units.

Our concern, which we took to the ATO, was that the claiming of relief, and re-setting of the CGT acquisition date, would also cause concern in relation to the Trusts stature as being held ‘pre- August 1999’. Naturally, given the extreme flexibility that these Trusts can still operate under – we did not want to jeopardise this status.

We have received guidance from the ATO which confirms that CGT relief applied on the units of a pre-99 unit trust will not alter its categorisation as a pre-99 unit trust for SIS purposes.

The CGT deferral will not be able to be offset by future Exempt Current Pension Income – so be careful to lock your clients in to a CGT payment that they may not otherwise have been exposed to had no relief been chosen.

Practical Implementation – tips and traps

More Information

Please contact our Superannuation SpecialistsBrenda Hutchinson or Jason Roccasalvo, to discuss your particular client’s circumstances.

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