SMSFs awaiting legislative amendments in relation to the CGT won’t necessarily be ruled out of the relief should the amendments fail to pass Parliament before 30 June as the legislation will likely be backdated, according to the SMSF Association.
SMSF Association head of technical Peter Hogan says the recent LCG confirmed that the transitional arrangements are intended to provide CGT relief for funds to reset the cost base where they move from current pension phase to accumulation phase.
He said members using the segregated method may continue to receive a transition to retirement, not only for 2016-17 but also past 30 June 2016 into the 2017-18 financial year.
“The ATO’s view makes it clear that the relief is intended to be applied to the situation and that consequently the government is considering legislative options to clarify this,” Mr Hogan said.
Where the technical difficulty lies, he explained, is the fact that there’s no automatic conversion of the transition to retirement either to an account-based pension or to an accumulation account with the way a transition to retirement income stream is currently defined in the legislation.
“In other words, the only way that a transition to retirement income stream can cease, is if you commute it, the way the definition currently stands,” Mr Hogan said.
“So clearly any amendment that is made will need to [allow for] an automatic conversion of the TRIS back to something which is not in retirement phase, and which is in accumulation phase.”
Mr Hogan said there is concern, however, given that these necessary amendments that will need to apply from 30 June onwards, the amendments won’t be passed as legislation before this date.
“These things do take time. We do have three or four months so I’m possibly being overly pessimistic, and with a bit of luck we may well see some draft legislation which may get through Parliament in time to meet the 30 June deadline,” he said.
“We may not see the legislation before 30 June which often happens in these sorts of circumstances.
“So that’s a watch this space to see if we do get the change of rules through Parliament before 30 June or not.”
Mr Hogan said this should not be a barrier to accessing the CGT relief even if the amendments aren’t passed before 30 June, with the legislation usually backdated in these types of situations.
“I think there is a clear intention indicated in the LCG, and with the explanatory memorandum and the original legislation, that it’s intended that CGT relief should apply in these circumstances and so any legislation, even if doesn’t get through Parliament before 30 June, will be backdated back to an appropriate date. So that the CGT relief will be available,” he said.
Mr Hogan also reassured SMSF practitioners and trustees that the Commissioner of Taxation has indicated that as long as the physical CGT elections are made in the preparation of accounts, the ATO will be satisfied.
“So it’s not something that they necessarily need to bed down in a hard and fast way before 30 June this year,” he said.
“Clearly, it would still be a good idea for trustees to minute the fact that a decision has been made to act on the CGT relief, that the trustees may wish to take appropriate action in order to claim the capital gains tax relief.”
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