Speaking to SMSF Adviser, DBA Lawyers director Daniel Butler said it is critical to understand that SMSFs who were segregated on 9 November 2016 will be subject to the segregated CGT relief, even though they may have switched to unsegregated before 1 July 2017.
“If a fund was 100 per cent segregated back on 9 November 2016, so 100 per cent in pension phase on that date, or they were actively segregated on that date, you are subject to the segregated CGT relief, even though you may have switched to become unsegregated prior to 1 July,” Mr Butler explained.
Another confusing aspect for funds that were segregated on 9 November 2016 but switched to become unsegregated prior to 1 July, is that they will still be required to obtain an actuarial certificate, he said.
“A lot of people haven’t [realised] that even though they were segregated, that they still need an actuarial certificate, particularly those that commuted towards the end of last year, like on the 29th of June, or the 30th of June,” he said.
“They may not realise that they need an actuarial certificate for those couple of days, and then we have the ATO concession to say, ‘Well we won’t look at your actuarial certificate for FY 2016-17 provided you’ve got an actuarial certificate, we’ll accept that’. So that confuses people.”
Mr Butler said it was also important to understand some of the differences between the segregated CGT relief and the proportionate CGT relief.
“One attraction to applying the segregated CGT relief is that the entire capital gain is disregarded in relation to the relevant segregated asset under section 118-320 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’),” he explained.
“In contrast, under the unsegregated method, a notional capital gain on the non-exempt proportion is assessable and is included in the fund’s assessable income. [This is] subject to making a further choice to defer the notional gain until it is actually realised.”
If the proportionate CGT relief applies, Mr Butler said a deferral of any unrealised capital gain is generally the most prudent choice compared to paying tax upfront on an unrealised or notional capital gain.
“Further, deferring tax generally produces the best outcome when there are capital losses,” he said.