CGT deferral ‘nightmares’ set to surface for SMSFs
With some clients beginning to sell assets which had deferred capital gains under the transitional CGT relief, confusion is arising around how to treat these amounts, says an SMSF audit firm.
Where SMSFs were eligible for the transitional CGT relief and used the proportionate method for calculating ECPI throughout the pre-commencement period, they had the option to defer the capital gain when applying the relief.
Speaking to SMSF Adviser, TriSuper Auditors director Joel Curry said that SMSF professionals continue to grapple with the transitional CGT relief, especially now that it’s the second year and clients have started to sell assets for which they had chosen to defer capital gains from the year before.
“I think that's going to be a nightmare going forward, especially if they haven't recorded it properly,” Mr Curry warned.
Some practitioners are unclear around how to bring that deferred gain into the 2017/18 annual return if the client has now sold the asset.
“That’s now starting to come into play and will continue to be an issue,” he said.
“Where an SMSF trustee deferred a CGT event in the 2017 year, they’ve actually locked in that capital gain amount and the amount of tax they have to pay on it.”
Where an SMSF client has decided to sell an asset, confusion may arise around how the deferred gain should be recognised in the return for the 2017/18 financial year and how any losses in that year or exempt pension percentages should be treated in that same year, he explained.
“I don’t think it’s clear to practitioners yet on how to specifically deal with that, especially for those who weren't on systems that calculated it and kept that data,” he said.
In some cases, where the SMSF client has switched accounting firms or the firm has switched to a new software system, data will need to be captured from the old system that was being used.
“This will be a legacy thing. It will go on for around five years until those assets are sold down, it's just going to be an ongoing thing,” he said.