March 2018
Revisiting the transitional CGT relief rules
Overview
From 1 July 2017, the Federal Government’s (Government) new transfer balance cap of $1.6 million is applied to all income streams in the “retirement phase”. Transition-to-retirement income streams (TRISs) in the accumulation phase are not subject to the transfer balance cap. 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, those funds paying an account-based pension valued at greater than $1.6 million or a TRIS in accumulation phase prior to 1 July 2017, will lose some or all of that exemption from 1 July 2017.
To soften the impact of this change, the Government provided transitional capital gains tax (CGT) relief measures available to those affected funds for the 2016/17 financial year. 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 and distinguish between a TRIS in accumulation phase versus retirement phase
- 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 areas: 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 Dimensions: Capability, Critical Thinking (FPA 009785).
AFA CPD points 1.25 (AFA 01022009).
CPA Australia CPD points 1.25 (CPA 000490).
TPB CPE (75 minutes/1.25 points).
SMSF Association CPD points: 1.25.