Transitional CGT Relief Black Hole Scenarios

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There appear to be some unintended outcomes which could eventuate if the wrong combination of actions are taken during the 2017 financial year.

They hinge on the legislated criteria that a super fund must satisfy if it wishes to use either the Segregated or Proportionate path to CGT relief.

The key points to note which may cause these unintended outcomes are:

Segregated Path
s294-110 (1) ITTP 1997

In order to be eligible for the relief under the segregated method, the asset in question had to be segregated to a pension account at 9 November 2016 (the start of the  pre-commencement time) and then cease to be a segregated current pension asset at some point during the pre-commencement time (9 Nov 2016 to 30 June 2017).

Proportionate Path
s294-115 (1) ITTP 1997

In order to be eiligible for the relief the fund had to have an actuarial % of great than nil during the 2017 period and the asset must not have been segregated to pension at any point during the pre-commencement period.

With these criteria in mind trustees and advisers should be careful that they do not make structural changes in the pre-commencement phase that prelcude the fund from accessing the CGT relief.

Consider:

  • At 1 July 2016 a fund is 80% in pension phase.  At 1 December 2016, the trustees decide to convert the accumulation account into pension.  By doing this the fund is ineligible for the CGT relief under the segregated method because no assets were segregated to back pension at the commencement date of 9 November 2016.  The fund is also ineligible to access the relief under the proportionate method, as the fund assets are all segregated to backing pension from the time the new pension starts at 1 December 2016.
  • A fund goes from full accumulation to full pension phase at 1 February 2017.  Again the fund is ineligible to access the relief under the segregated method due to no assets being segregated to pension at 9 November 2016.  On the Proportionate method side of things, the door is also shut as assets are segregated during the pre-commencement phase.

Note that it may be possible to avoid these poor outcomes if some of the accumulation balances are kept out of pension mode for the full year and assets are not specifically segregated into pension after 9 November 2016.

If you have any concerns regarding this or any SMSF matter, please contact the expert team at Aquila Super and we will help.