Darren Wynen from Tax Banter and Insyt explained that funds that were paying an account based pension above $1.6 million had to commute the excess back to accumulation before the 30 June.
“Some practitioners have been worried that because there was a day in accumulation that the deemed capital gain on triggering the CGT relief under the segregated method will not be fully tax exempt and that’s incorrect,” said Mr Wynen.
“The way the legislation works is that the CGT event is triggered just before the cessation time, so if the assets were segregated then the gain will effectively be tax free when the relief is triggered and the legislation makes that clear.”
There are some SMSF practitioners concerned, he said, that because there was $400,000 in accumulation phase on 30 June, for example, that the capital gain that was triggered is going to be partially taxable because it’s based on the $400,000 in accumulation and $1.6 million in pension which is effectively 20 per cent, which is incorrect.
“If they had commuted just before the 30th of June then that gain might have been triggered on the 29 June which is when the fund was wholly segregated and therefore the gain is completely exempt,” he said.
“So people are worried that the segregated relief is going to come with a sting in the tail but the benefit of segregated assets is that the gain is completely disregarded.”
The relevant time frame, as set out in the legislation, is 9 November 2016 to just before 1 July 2017. Never before has language been as important: “just before 1 July 2017” means 1 second before midnight on 30 June so any commutation on, say, June 30 at 3pm is acceptable. I think the confusion was around whether the fund needed an actuary’s certificate to confirm the ECPI. The ATO has said that an SMSF would need to have the certificate.