Transitional CGT relief is temporary relief available to all super funds, not just SMSFs, for certain CGT assets that would otherwise lose the tax exemption through the necessary efforts to comply with the new transfer balance cap and new conditions to be applied to transition to retirement income streams (TRIS).

Upon the introduction of the transfer balance cap, effective July 1, 2017, it is expected that some SMSF trustees will need to scale back existing pensions so that members do not exceed their transfer balance cap, which is $1.6 million for the 2017-18 financial year.

If CGT assets are sold to enable the commutation and withdrawal from existing pensions, then the current law will apply to these disposals and the transitional CGT relief is of no relevance.

Conversely, if a fund member decides to commute a portion of their superannuation interest, that currently is in the pension phase, back into the accumulation phase, then the transitional CGT relief will be more than relevant. This is because investment earnings, including capital gains, are taxable in the accumulation phase.

Webinar: The new super rules – CGT changes

The introduction of the new superannuation rules in November 2016 cause a ‘moving’ of the goal posts as far as contributions, pensions and tax exemptions for superannuation funds and SMSFs. One of the changes was some capital gains tax relief (or ability to reset asset cost bases) on or before 30 June 2017. This session will take you through when the CGT relief measures apply (what conditions must be met) and the practical ways to apply the relief. The session will include worked examples and case studies to assist in your understanding.
Tax & Super Australia is hosting a webinar, hosted by Shirley Schaefer,
titled “The new super rules – CGT changes” on April 5. This workshop examines transitional CGT relief rules, eligibility for the CGT relief, record keeping requirements, and strategies to maximise the value of the CGT relief.
When: Monday, 22 May 2017 Time: 11.00am – 12.30pm AEDT CPD: 1.5 hours
Member price: $140.00 (inc GST) Non-Member price: $165.00 (inc GST)

Register now

Additionally, from July 1, income from assets supporting a TRIS will not be eligible for an exemption from income tax on earnings, so the CGT relief provisions will be relevant for superannuation members receiving a TRIS.

Essentially, the transitional CGT relief ensures any capital gains that might arise as a result of superannuation fund members complying with the transfer balance cap or because of the TRIS losing the tax exemption will continue to receive concessional treatment.

The application of CGT relief
Trustees can choose to apply temporary CGT relief if they hold the asset throughout the period November 9, 2016 to June 30, 2017 (the “pre-commencement period”), and will need to do so before they are “required to lodge” the fund’s 2016-17 tax return.

Applying CGT relief will:

  • reset the cost base of an asset to its market value (this is where trustees reallocate or re-proportion assets from retirement phase to accumulation phase). The market value would be determined under the ATO’s valuation guidelines for SMSFs on the date of the asset transfer, or June 30, 2017 where assets are re-apportioned
  • defer a capital gain that arises when resetting the cost base for re-proportioning assets where you use the proportionate method.

If a trustee has been using the segregated method, and either continues to use it or switches to the proportionate method, an asset must cease being a segregated current pension asset at a time during the “pre-commencement period” to be eligible for relief. The capital gain or loss for that asset will then be entirely disregarded.

An asset ceases to be a segregated current pension asset when:

  • it is transferred out of the pool of segregated current pension assets; or
  • the trustee makes and records an election to switch to the proportionate method.

The ATO has published a Law Companion Guideline on the relief measures. Other guidelines are also available on the raft of super changes in the pipeline.

Free ATO webinar recording
The ATO hosted a 1 hour 15 minute webinar recently titled “CGT relief”. Click here to view.