SMSF Association head of technical Peter Hogan says given the operation of the CGT relief provisions and the potential to defer tax liability, the industry may see a shift in more SMSFs choosing to use tax effect accounting in the preparation of their accounts.
Mr Hogan said, in his experience, tax effect accounting is not universally adopted at the moment, with only a “50-50 split between those that use tax effect accounting and those that don’t”.
ATO assistant commissioner Kasey MacFarlane agreed that the CGT relief and the potential deferred capital gains may encourage some SMSF trustees to adopt tax effect accounting if they’re not already using it.
“In our observations, the use of tax effect accounting is not universal and that’s probably not surprising given that the accounting standards don’t prescribe the taxation accounting method that needs to be used by SMSFs. Similarly, the ATO doesn’t have any regulatory power or obligation to compel an SMSF to adopt particular accounting methodologies,” Ms MacFarlane said.
Regardless of the accounting method the SMSF is using, the key point around the CGT relief, is that “it is incumbent upon the trustee to maintain records in accordance with the usual CGT record keeping requirements about the particular assets which they have elected to apply CGT relief to, as well as the details of any applicable deferred gains,” she said.
“I think that’s really the critical point, that regardless of the accounting method for tax purposes, those records will need to be kept and that will be critical.”