Speaking at a seminar in Sydney, DBA Lawyers director Daniel Butler said in order to make final decisions or judgements on the CGT relief for clients, practitioners will require an authorisation under a managed discretionary account services licence, which most SMSF practitioners will not have.
“Most [SMSF practitioners] probably don’t have a managed discretionary account licence that allows them to advise on a discretionary basis, so you’re really in this pickle where you can do a lot to lead the client there, but you can’t actually make the call,” Mr Butler explained.
“You’ve got to put it to the client to make the call because these are critical judgements and a lot of things are going to go pear-shaped. There’s going to be a lot of litigation down the track about this.”
Mr Butler also noted that there are various scenarios or reasons why implementing the CGT relief could negatively impact clients in certain cases.
An SMSF trustee may not want to implement the CGT relief for assets that have a capital loss if they’re planning to sell an asset within 12 months and if the asset will be in pension mode when it’s realised.
“If you get a capital loss, the client is not going to love you for electing [to apply the relief] because you’ve just taken the value down rather than up. So for a capital loss you don’t want to elect,” Mr Butler said.
He also gave an example where applying the CGT relief could be the wrong decision due to one of the members entering the pension phase.
“What if today only dad is in pension and that’s 50 per cent of the fund, and when you realise the asset down the track, mum is going to be in pension?” Mr Butler said.
“Let’s say they’ve got a $150,000 cap gain unrealised on an asset, you take the one-third discount, so you’re back to $100,000. So today you have elected at 50 per cent, so you’re bringing into account $50,000 of taxable income and you’ve locked yourself in, this is irrevocable, you’ve locked in the $50,000.
“When you flip or realise that asset, you must bring that gain to account and you then pay tax on that, but let’s say under these circumstances mum is now in pension. So you could have [alternatively] flipped it with no tax.”
In this circumstance, the client could come back pointing the finger because the tax outcome negatively impacted them, he said.
“They might come back saying, ‘I’m paying tax now of at least $7,500 and I want revenge. I want you to pay the tax because you put me into this,” Mr Butler warned.
We should be suing the person wrote this complex law, not the hapless professionals trying to interpret and explain it. Self managed super funds are supposed to be self managed. Time to put the SMSF legislation in a separate act that is readable and doesn’t leave room for doubt or legal action against any adviser or accountant
Some very confused faces in client meetings discussing the options for Pre-July 2017. Now using decision trees , flow charts and checklists to try and simplify. I think if you client says go ahead straight away that should be an alarm bell that they don’t get what you have juast told them …or that you are a genius at explaining the options clearly…are you? In a lot of cases they might trust you 100 per cent but will they later or will their beneficiaries?