PwC cautions on creative tax-cutting strategy
PwC has urged accountants to have a “frank discussion” with clients who may be planning to wash the cost base of assets while in the pension phase.
Speaking at a SuperCentral seminar in Sydney, PwC director or private clients Liz Westover said the $1.6 million pension transfer cap proposal is one of the areas where she has received the most questions from clients.
Ms Westover said both clients and practitioners want to know if they should start “washing the cost bases” of assets given the proposed $1.6 million pension transfer cap.
“So buying and selling the same assets ... Selling them and then crystallising the capital gain while you’re in pension phrase, then buying the assets straight back, so effectively you’re minimising your capital gain when your balances have to come out of the pension phase,” she said.
“Well, there’s a big thing in the tax law that talks about Part IVA in tax avoidance, so I would have a very frank discussion with your clients around part IVA issues if they are considering doing these sorts of arrangements.”
Ms Westover said SMSF practitioners and clients should be especially careful where it’s obvious the client is buying, selling and buying straight back “simply to wash the cost basis away”.
“Be very careful and exercise a lot of caution around that.”
She urged SMSF practitioners to start looking at the gains their clients have sitting in their pension accounts.
“Particularly if [they’re] above the $1.6 million balance because [they’ll] be able to claim the full exemption when [they] receive the pension at this time,” she said.
“So have a look at what gains are there, and is there capacity or desire to actually sell some of those assets now or sooner than later. So if someone’s talking about selling an asset and you know they’re going to, in the foreseeable future it might be wise to do so in the current financial year rather than waiting any longer.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.