CGT timing myth debunked for SMSFs
A misconception around the timing of CGT events for funds that were segregated before 30 June has led to a false belief that the CGT relief can “come with a sting in the tail”, says a technical expert.
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.”
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.