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CGT schedule wording posing snares for SMSFs
The wording of one of the CGT schedule questions refers to applying the CGT relief to the fund level rather than an asset by asset basis which could lead to misunderstanding among SMSF trustees and practitioners, warns an industry lawyer.
DBA Lawyers director Daniel Butler said item 8F of the CGT schedule for the 2017 financial year contains a question which asks the member if they have “chosen to apply the transitional CGT relief for [their] superannuation funds”.
“The wording in this question suggests that the CGT relief applies on a fund level rather than on an asset by asset basis. However, the correct legal analysis is that the CGT relief is to apply on an asset by asset basis,” said Mr Butler.
For SMSF trustees that have elected to apply the segregated CGT relief to one or more assets, this question should be answered ‘Yes’, he clarified.
Likewise, SMSF trustees that have elected to apply the proportionate CGT relief to apply to one or more assets should also answer item 8F with a ‘Yes’.
“Item 8G ‘Notional capital gain amount deferred’ should also be completed where the trustee has chosen to defer a notional capital gain.”
In practice, the wording of item 8F may enliven potential confusion, he said, in situations where the SMSF trustee had elected for proportionate CGT relief to apply to a particular asset or assets and lodged its FY2017 income tax return on this basis, [but] prior to 30 June 2018, the SMSF trustee also decides to elect for CGT relief to apply to another asset or assets not covered by the prior CGT election already lodged.”
In this scenario, he explained that the SMSF trustee will have until 30 June 2018 to amend the previously-lodged FY2017 income tax return even though they had already selected ‘Yes’ in relation to item 8F.
“They would only need to amend the amount in item 8G in relation to the ‘Notional capital gain amount deferred’. Naturally, appropriate supporting records should be retained,” he said.
SMSF trustees that have already elected for segregated CGT relief to apply to particular assets and lodged their FY2017 income tax return on this basis, can also amend their previously lodged tax return prior to 30 June 2018, where they want to apply the CGT relief to other assets, he added.
“No disclosures in the CGT Schedule will need to be varied because item 8F would have already been answered ‘Yes’ and item 8G is not relevant for segregated CGT relief,” he explained.
In light of the confusing wording, he said, some SMSF trustees may need to review their CGT elections to ensure they are correct.
However, Mr Butler added that SMSF trustees cannot amend a previously lodged tax return in relation to a CGT election in respect of an asset already covered by that election. This is because the election is a once only irrevocable election in respect of a particular CGT asset.
Miranda Brownlee
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 also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
How would the irrevocability of an election enforced?0- Thank God that Mr Butler provided an expose on the "CGT Relief" issue. We, as trustees of a SMSF (100% pension fund in 2016/17, but one member account subjected to commutation going into 2017/18), have been grappling with the Law Companion Ruling 2016/8.
In paragraph 13, it says that CGT Relief is not automatic and need to lodge CGT Schedule 2017. On the other hand at para 72 (applicable to 100% pension funds subjected to commutation), it says that the deemed capital gain on selected assets as at 30 June 2017 will be disregarded. In the instructions for the SMSF Annual Return 2017 (under labels G, M and A), there is no need to record that disregarded deemed capital gain - it will be ignored.
Considering that we are not deferring any of deemed capital gain (just disregarding all of it), do we need to complete Item 8 in the CGT Schedule 2017?? If we must do this, everything in the CGT Schedule (starting from Item 1 - Capital Gain/Loss), will be zero, including label 8 G (deferred capital gain). So, only thing that will be recorded in the CGT Schedule will be 8 F "Yes" in response to "are you applying Transitional CGT Relief?"
If we do not complete CGT Schedule 2017 (however ridiculous it seems) we may legally fall foul in relation to Income Tax (Transitional Provisions) Act 1997, Section 294-110 (2); (which says the same thing that the para 13 of LCR 2016/8 says).
In our opinion, critical information relating to CGT Relief is not sought in the CGT Schedule 2017 Item 8- they are: (1) the exempt proportion (xxx%) and (2) the exempt deemed capital gain amount.
Please clarify this issue for us.0
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