June 2017
Understanding the transitional CGT relief rules
Overview
From 1 July 2017, the Federal Government’s (Government) new transfer balance cap of $1.6 million will be applied to all income streams in the “retirement phase”. This excludes transition-to-retirement (TTR) pensions. By extension of the cap being introduced, this will limit the value of the assets an individual can transfer into a tax-free pension account to $1.6 million.
As a result, many of those funds paying an account-based pension valued at greater than $1.6 million or a TTR pension, will lose some or all of that exemption from 1 July 2017.
To assist in the transition, the Government has introduced transitional capital gains tax (CGT) relief measures available to those affected funds. These relief measures are not compulsory and are subject to a fund electing for them to apply. Anti-avoidance measures have been incorporated into the relief measures to ensure a fund does not enter into a scheme to avoid tax.
Learning objectives
After reading this article you should be able to:
- Identify when a fund is eligible to apply the transitional CGT relief to its assets
- Differentiate between when a fund is entitled to use the segregated versus proportionate method for applying the transitional CGT relief
- Discuss the strategies an SMSF needs to be aware of to ensure it does not create tax avoidance issue as a result of applying the transitional CGT relief
- Explain the reporting obligations for a fund that elects to apply the transitional CGT relief.
Knowledge areas and accreditation
Knowledge area: Self-Managed Superannuation Funds (60 minutes/1.0 point), Self-Managed Superannuation Funds — Legal Environment and Compliance (15 minutes/0.25 points).
FPA CPD points 1.25 Dimension: Critical Thinking (FPA 009078).
AFA CPD points 1.25 (AFA 01022009).
CPA Australia CPD points 1.25 (CPA 000297).
SMSF Association CPD points 1.25.
TPB CPE (75 minutes/1.25 points).