CGT relief, 2016 Budget changes and SMSFs – Do I need to commute back to accumulation phase to access relief?

The 2016 Budget changes include CGT relief that allows SMSFs to reset cost bases of assets to market value before 1 July 2017.

The ATO in LCG 2016/8 say that to access the CGT relief, there must be an amount commuted to accumulation phase from pension phase to comply with the transfer balance cap rules. This requirement is not in the operative provisions of the legislation, and the ATO is taking the view that the objects clause in the legislation imposes an extra condition to claim the CGT relief.

Based on the wording of the legislation, there are arguments that SMSFs with pension balances under $1.6m could use the CGT relief to reset cost bases of assets supporting those pensions (even if no amounts are commuted from existing pensions).

If a SMSF is segregated at 9 November 2016, it must become unsegregated to access the CGT relief. That can occur without commuting existing pensions.

There are circumstances where this could be extremely advantageous to SMSFs. For example, after the death of one of two pensioners in a SMSF, it is likely the survivor will have an accumulation account, so not all assets will be supporting pensions and CGT may be triggered when assets are sold. Resetting cost bases in 2017 could substantially reduce the CGT.

This means all SMSFs with members drawing pensions should consider resetting cost bases using the CGT relief, and not just those with pension balances over $1.6m.

Cooper Grace Ward is running a webinar on Thursday, 18 May 2017 at 12 noon to discuss the CGT relief in more detail, including this issue. Click here for details.