CGT relief posing valuation traps with divorce cases
The CGT relief could potentially result in overvalued member account interests following marriage splits, if the deferred notional capital gains are overlooked in the process, an industry lawyer has warned.
Speaking at a Townsends Business & Corporate Lawyers event, Townsends special counsel Michael Hallinan explained that the notional gain enters into tax payable in the year in which the asset that gave rise to the notional gain is disposed.
“So a fund could have not one, but two, three or four of these notional gains, each attached in a sense to a separate and discreet asset, and those notional gains will be realised in the financial years in which those relevant assets are subject to disposal,” Mr Hallinan said.
This raises an interesting question for valuation purposes in terms of how that crystallised gain will be set out in the financial statements, he said.
“How is someone to know whether there is one or more of these deferred notional gains sitting in the balance sheets which are yet to appear or be incorporated into the valuation member accounts?”
Mr Hallinan said the deferred notional gain is related to the asset itself – it’s not related to the member of the fund at that time.
“If there’s a subsequent marriage split and there’s a need to revalue the superannuation interests, [practitioners will] need to take into account that notional gain sitting somewhere in the balance sheet,” he said.
“In terms of marriage splits, it could mean that it’s very easy to overvalue a member’s account interest, because [you haven’t taken] into account that deferred liability.”
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 also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.