23/02/2017. Super Reform CGT Relief Explained the Clock is Ticking! Presented by Mark Ellem Executive Manager, SMSF Technical Services, SuperConcepts

Transcription

1 Super Reform CGT Relief Explained the Clock is Ticking! Presented by Mark Ellem Executive Manager, SMSF Technical Services, SuperConcepts 1

2 Session Outline Object of the CGT relief provisions Segregation restrictions and actuarial certificate exceptions Which funds and assets are eligible for relief How the relief rules work Tips & traps Segregation restrictions for some SMSFs & SAFs From 1 July 2017, an SMSF or SAF will be excluded from using the segregated method when calculating ECPI if: At least one member has a retirement phase interest in the fund A member has a total super balance exceeding $1.6m at 30 June prior That same member is a recipient of retirement phase benefits payable just before the start of the year (whether from the fund or another fund) That same member has a super interest in the fund at any time during the income year Segregation for investment purposes still permitted. 2

3 Actuarial certificate exceptions Draft regs released late 2016 provided that all of a fund s currently payable pension liabilities are in respect of allocated pensions, market linked pensions or account-based pensions, the fund will not need to obtain an actuary s certificate even if using the unsegregated method Exemption will not apply if any part of the fund s currently payable liabilities relate to other things (for example, another types of super income streams) Will apply to the 2017/18 income year and later income years. How does CGT Relief work? Trustees will make a decision to apply CGT relief on an asset by asset basis Choice of assets available for relief will be determined by: Why the relief is available comply with transfer balance cap or fund paying TTR Pension How the fund claims ECPI Unsegregated or segregated Determine new cost base for selected eligible assets For fund using unsegregated ECPI method Calculate notional gain on cost base reset Further choice to defer notional gain Non revokable election(s) prior to lodgement of the fund s 2016/17 return. 3

4 Unsegregated funds CGT relief is available for a CGT asset provided: The asset was held by the fund throughout the pre-commencement period For 2016/17, the average value of he fund s current pension liabilities, divided by the average value of its super liabilities, exceeds nil The asset was not a segregated current pension asset or a segregated non-current asset throughout the pre-commencement period The trustee chooses for relief to apply to the asset (in the approved manner). Unsegregated funds An amount is rolled back from pension to accumulation to comply with TBC or fund has TTR Pension Notional capital gain is calculated on selected eligible assets and cost bases reset to market value Also resets acquisition date for CG discount ECPI% for 2016/17 will determine assessable portion of notional CG Trustee can defer notional CG to year asset is sold Non revokable election(s) prior to lodgement of the fund s 2016/17 return Apply CGT relief Defer notional CG. 4

5 Unsegregated funds CGT Relief Tony & Pauline have their own SMSF Tony retired and drawing a pension (ABP) - $2m Pauline has accumulation account - $1m Fund uses unsegregated method to claim ECPI To comply with TBC, Tony must partially commute $400k from his pension by 30/6/2017 The fund has a two assets Cash - $200k Property - $2.8m (cost base $2m). Unsegregated funds CGT Relief The fund chooses to apply CGT relief to ensure it does not have to pay CGT in the future for the proportion of the asset that supported Tony s pension that was commuted as a result of the introduction of the transfer balance cap The relief deems the asset to be sold on 30 June 2017, and reacquired immediately afterwards, for its market value. This will reset the cost base for the asset to $2.8 million. It will also reset the 12 month period for the asset to be eligible for the CGT discount. 5

6 Unsegregated funds CGT Relief CGT event A1 occurs in relation to the deemed sale and a capital gain of $800,000 arises from that event. If the fund does not elect to defer the capital gain, the gain will be brought to account in the income year The 1/3rd CGT discount applies (held >12 mnths). Assuming the fund had no other CGT events or prior year CGT losses, the fund will have a net capital gain for the income year of $533,333. Unsegregated funds CGT Relief Due to Tony s commutation on the last day of the financial year, the fund s average exempt proportion for the year will be slightly less than two thirds Therefore, just over $177,778 will be included in the fund s assessable income for that year, representing the amount of the gain attributable to the proportion of the fund s asset that was supporting Pauline s accumulation phase interest. 6

7 Unsegregated funds CGT Relief Fund has choice to defer notional assessable gain ($177,778) until asset is actually sold Choice to defer CG must be made at same time & in same manner as the choice to apply CGT relief Deferred CG brought to account in year asset is sold No further application of ECPI% Not a discount CG Election for CGT relief must be made by 30 June 2017 or prior to lodgement of 2016/17 return. Unsegregated funds CGT Relief Should Trustee reset cost base for this fund? It depends What will ECPI% be in year asset is sold? Higher than 2016/17? Pauline retired an commenced pension? How much accumulation account will Tony have? Will asset be sold for more than 30 June 2017 market value (used to reset cost base)? Elections for CGT relief & deferral are irrevocable! 7

8 Segregated funds CGT relief is available for a CGT asset provided: The asset was a segregated current pension asset at the start of the pre-commencement period, but stopped being such an asset on or before 30 June 2017 The fund held the asset throughout the pre-commencement period The trustee chooses for relief to apply to the asset (in the approved manner). Segregated funds An amount is rolled back from pension to accumulation to comply with TBC or fund is paying TTR Pension Cost base is reset on the specific assets supporting the amount rolled back The asset(s) transferred from segregated pension asset pool to segregated non pension asset pool No notional capital gain resulting from CGT reset CGT Event on segregated assets ignored No election to defer notional gain Non revokable election prior to lodgement of the fund s 2016/17 return. 8

9 100% pension fund - segregated Barack & Hillary have their own SMSF Both retired and drawing a pension (ABP) They each have an ABP of $2m No current accumulation account To comply with TBC, each must partially commute $400k from their respective pension by 30 June % pension fund - segregated The fund has two options when adjusting the allocation of its assets to its superannuation liabilities that would allow it to claim CGT relief: 1. the fund may continue to use the segregated method and transfer assets between the two segregated asset pools; or 2. the fund may cease to use the segregated method and adopt the proportionate method. 9

10 CGT Relief Segregated: Option 1 On 1 March 2017, each member partially commutes $400k, the fund transfers a single asset segregated current pension asset with a current market value of $800k from the segregated pool of exempt assets into its pool of segregated non-current assets. The CGT cost base of the transferred asset is $500k, meaning it has already accrued unrealised capital gains of 300k, before applying CGT discount. The fund chooses to apply the CGT relief rules. CGT Relief Segregated: Option 1 The relief deems the asset to be sold and reacquired for its market value on 1 March This will reset the cost base for the asset to $800k. It will also reset the 12 month period for the asset to be eligible for the CGT discount CGT event A1 occurs in relation to the deemed sale and gives rise to a capital gain of $300,000. However, as this capital gain arises while the asset is still a segregated current pension asset, the gain is exempt from tax. 10

11 CGT Relief Segregated: Option 1 The fund sells the asset on 30 March 2018 for $1m. Another CGT event and capital gain arise at this time. Because the cost base of the asset is now $800k, the fund makes a $200,000 capital gain The CGT discount applies to the capital gain because the fund held the asset for more than 12 months from the time the transitional CGT relief applied (1 March 2017) The taxable proportion will reflect the proportion of the fund s superannuation liabilities that relate to Barack and Hillary s accumulation phase interests at that time. CGT Relief Segregated: Option 2 The fund could adopt the unsegregated method on 30 June Under this method, $3.2m of the fund s total assets ($4m) would be considered to be supporting Barack & Hillary s pensions on this day All of the assets that were segregated current pension assets from 9/11/16 to 30/6/17 would be eligible for CGT The fund could choose to apply relief to some or all of these assets. 11

12 CGT Relief Segregated: Option 2 The relief will reset the cost base for the chosen assets to their current market value as at 30 June It will also reset the 12 month period for the assets to be eligible for the CGT discount The capital gains generated by the application of the relief would be exempt from tax, as these gains would arise while the assets were still segregated. CGT Relief Watch out for Funds totally in pension phase are deemed to be segregated funds TTRs do not count towards the transfer balance cap and are not required to be rolled back But qualify the fund for CGT relief Resetting a cost base also resets acquisition date for CGT discount consider planned future sale of asset Brought forward & 2016/17 capital losses do not reduce notional CG when deferral option is chosen Unsegregated funds only. 12

13 CGT Relief Watch out for The relief is available to individual assets Analyse parcels of shares Making an unsegregated fund segregated after 9/11/ % TTR Pension fund will need an accumulation account by 30/6/17 Level of ECPI% in future years 2016/17 ECPI% = 65% 2019/20 ECPI% = 85% Part IVA application Segregated method to claim ECPI will be restricted from 2017/18 income year. Start reviewing funds and discussing with trustees NOW! Important Presentation Note This presentation is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice orsecurities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. This presentation was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. 13

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