‘Major CGT issue’ surfacing in 2017-18 returns
SMSFs have been reminded to keep track of any capital gains that were deferred under the transitional CGT relief with one audit firm already detecting issues in this area.
Speaking to SMSF Adviser, Hayes Knight director of SMSF services Ray Itaoui said in the SMSFs he audited for the 2017-18 financial year so far, he is already starting to see funds that have disposed of assets but not realised the gains for these assets that were deferred when they applied the relief.
SMSFs who applied the CGT relief under the proportionate method had the option to defer a capital gain on an asset until the asset was sold in the future.
“The ramifications of applying the relief and deferring that capital gain is that upon the disposal of that asset, that capital gain needs to be realised,” Mr Itaoui explained.
“We're already seeing funds that we've audited that have disposed of assets for which they previously applied the CGT relief and the deferred tax has not been realised. That will definitely be a major issue this year, especially where trustees change accountants or administrators.”
The new accountant may not have a clear history of how the CGT relief was applied, he said.
“It can slip through the cracks and if that information is lost then how do you possibly know which assets had a tax deferred component and how do you realise that tax liability for the 2018 financial year,” said Mr Itaoui.
“We've also seen some funds come through where it’s the same accountant looking after the fund, but for whatever reason it hasn't been picked up in the software and there should have been a taxed deferred amount that was realised upon the disposal of the asset.”
“I think that's an area that's going to catch some people out and it's important that practitioners are diligent and make sure that they are picking up any tax deferred amounts that should be realised.”