SMSFs warned on timing traps with unit trust transfers
With 30 June fast approaching, SMSFs have been warned about some of the potential timing issues with restructuring trusts and transferring assets into SMSF, and the resulting tax consequences.
In the lead-up to 30 June, many SMSF trustees with unit trusts have been restructuring or collapsing these unit trusts and transferring the assets out of the trust and into their SMSF, according to Darren Wynen from Insyt and TaxBanter.
One of the issues with this, he said, is that because the super fund is a trust, there’s a different CGT event that occurs – CGT event E2.
“The reason why this is significant is because there’s different timing with that,” explained Mr Wynen.
“So if I sell an asset and sign the contract today and it settles in July, normally the rule is that the event occurs on the day that the contract was signed, not on settlement, which is the next financial year. However, because it’s a super fund, being a trust, the timing of the event actually takes place on settlement which is in the next financial year.”
My Wynen said this is evident from ATO ID 2003/559 and a private binding ruling with the authorisation number 1013113943093.
“So if [SMSF trustees] don’t settle the contract and do everything before year-end, then their capital gains may flow into the next financial year, and not as intended,” he warned.
“This could have negative tax outcomes for those SMSF trustees who are fully in pension phase this year because they’d be hoping to get the gain in this year when it’s all exempt,” he said.
“If it flicks over to next year, we’ve got the $1.6 million transfer balance cap, so there may be a CGT liability that arises.”
Mr Wynen said SMSF trustees should also be careful of where the unit trust owns a residential property and they’re planning to transfer it to an SMSF, because if it’s a related party it could be in breach of Section 66 of the SISA.