With just over 9 weeks left of the current financial year time is running out to review your superannuation arrangements to ensure that you are in the best position for the new financial year. With the superannuation reforms as announced in the 2016 Federal Budget coming into effect from 1 July you may need to act now to capitalise on the opportunities these have presented for the current financial year.
In Part 1 of this series we discussed the new superannuation contribution rules and other changes to contributions as well as some of the opportunities that are available up to 30 June.
In Part 2, we looked at how pensions are changing and the impact that these changes will have on many superannuation funds.
Now, we are taking a closer look at the Transitional capital gains tax (CGT) relief provisions. These provisions have been introduced to provide CGT relief for superannuation funds that are transferring assets out of retirement phase in 2016/17 to comply with the superannuation reforms. In essence, the legislation allows you to reset the cost bases of assets in your fund to their current market value.
CGT relief is complex, and it is vital to approach it with caution. There are many variables to consider, and each fund’s circumstances are different.
Before 30 June 2017, it is important to take a few issues into consideration, most significant being that you ensure that you meet the requirements for eligibility so that your superannuation fund can access CGT relief. While the election to apply CGT relief is not required until the due date of your fund’s 2017 annual return, the actions you need to take to ensure you can apply it must be done this financial year.
The advice you receive in relation to CGT relief will vary depending on your current pension arrangements and the value of all of your account based pensions or transition to retirement pensions. As well as other factors such as whether your fund was still receiving contributions or if it was only supporting pensions (segregated) as at 9 November 2016. Any contributions to your fund after 9 November 2016 may impact the date that is used for the cost base reset.
As discussed in Part 2 of this series, from 1 July 2017, the transfer balance cap (TBC) of $1.6 million will impose a limit on the amount of assets an individual can transfer into retirement phase. This means all pension accounts will need to be reviewed to determine whether you will need to take action to get under this cap.
The CGT relief provisions give superannuation funds the opportunity to elect to reset the cost base of assets that will no longer be solely supporting superannuation income streams in retirement phase from 1 July 2017 to a current market value. This effectively “locks-in” a CGT position on assets up to 30 June 2017 before the transfer balance cap applies and the transition to retirement pension changes takes effect.
In determining the CGT relief options best suited to each fund it will be necessary to look at cost bases and current market values of each asset. It is also important to consider possible changes to the tax exempt make up of a particular fund in the future such as additional members retiring.
Any election that is made in relation to CGT relief is irrevocable, so it is important to ensure that you do seek advice to ensure you make the best decision for your circumstances.
Hanrick Curran has a team of specialists that can help you determine which option of CGT relief is best for you. Whether it is choosing which assets to reset your cost base to either pay or defer any capital gains tax, or it is choosing not to reset any asset cost bases and not applying for CGT relief, our advisors can offer you guidance. The legislation and implications are complex so early planning and discussions with your specialist advisor are essential. To know more about how the CGT relief will affect you, please contact your usual Hanrick Curran specialist or, alternatively, call Clive Todd or Frances Hill on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.