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Draft super reforms bring welcome CGT relief

The government’s exposure draft for its superannuation reforms states that super funds will be able to reset the cost base of assets that are reallocated from the retirement phase to the accumulation phase prior to 1 July 2017, says an industry lawyer.

Draft super reforms bring welcome CGT relief
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  • mbrownlee
  • September 29, 2016
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DBA Lawyers director Bryce Figot explained that under the current law, if someone died with assets in an SMSF that were carrying an unrealised capital gain of $2 million, so long as the assets were supporting a pension upon death, the pension exemption would generally operate past death.

“[This would] essentially exempt any CGT-related assessable income resulting upon death,” he said.

Under the $1.6 million transfer balance cap, however, there were concerns that from 1 July 2017 it might be largely impossible to have all of those assets supporting a pension upon death.

“However, as the explanatory memorandum to the draft legislation states that ‘complying superannuation funds will now be able to reset the cost base of assets that are reallocated from the retirement phase to the accumulation phase prior to 1 July 2017’,” he said.

“Where these assets are already partially supporting accounts in the accumulation phase, tax will be paid on this proportion of the capital gain made to 1 July 2017. This tax may be deferred until the asset is sold, for up to 10 years.”

Mr Bryce warned SMSF practitioners that while resetting a cost base at 1 July 2017 can be beneficial, they should remember the general anti-avoidance provisions and the promoter penalty regime.

This is particularly so in light of the following comments from the draft explanatory memorandum:

“It would be … inappropriate for a fund to wash assets to obtain CGT relief or to use the relief to reduce the income tax payable on existing assets supporting the accumulation phase. Schemes designed to maximise an entity’s CGT relief or to minimise the CGT gains of existing assets in accumulation phase may be subject to the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936.

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