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My husband and I have a SMSF currently both in transition to retirement phase and I have an income account in a separate super fund. After evening up each of our balances, we will transfer the SMSF back to accumulation.
I also want to take advantage of the capital gain reset opportunity with equities with substantial capital gains. I know I can pick and choose which individual shares to reset capital gains, but can I also decide how many of a share to reset- e.g. 1000 ANZ bought at around $14 but not the remaining 1000 which were bought later or part of DRS when prices were substantially higher?
Is there any disadvantage to resetting capital gains apart from having to hold them for another 12 months to be eligible for the 50% discount?
Thank you in advance for your advice.
A: Thanks for your question.
The superannuation rules which apply from 1 July 2017 will change the way in which the income earned by the fund on investments used to support the transition to retirement pensions are treated. Under the rules applying to 30 June 2017 the income on investments used to support a transition to retirement pension are tax free whereas from 1 July 2017 the income earned by the fund on investments used to support transition to retirement pensions will be taxable at 15%. Because of this change a one off opportunity will arise to reset the cost base of the fund’s investments which recognises the move of the investments in the fund from a taxable to tax free environment. The investments that are subject to the reset depend on a number of factors as well as whether the fund determines its tax payable on a segregated or unsegregated basis.
As a general rule and depending on whether the fund is segregated or unsegregated, it is probably worthwhile to reset the CGT cost base on those investments which are showing a notional capital gain and not those which are showing a notional capital loss. However, of those investments which are showing a capital gain if the fund intends to sell the investments within 12 months of the reset date the 1/3rd CGT discount will not be available.
Here is some information on the treatment of the CGT cost base depending on whether the taxation of the fund is determined on a segregated or unsegregated basis:
Segregated Funds
As for the CGT cost base reset it is worthwhile for the trustees to have a minute signed prior to 30 June 2017 which recognises that the value of some fund investments may need to have their CGT cost base reset where assets are being transferred from pension to accumulation phases. However, the actual reset cannot be done until the exact value of the investments are known, usually, as at 30 June 2017. When the accounts for the fund are being prepared it may be a good time to select the investments which will require the CGT cost base to be reset. Technically, the fund has up to the time the fund lodges its tax return to elect to reset the CGT cost base of the relevant investments.
Basically, for a segregated fund it is possible to reset the CGT cost base of the fund’s assets if:
Unsegregated Funds
If the fund is an unsegregated fund it would also be worthwhile for the trustees to have a minute signed prior to 30 June 2017 which recognises that the value of some fund investments may need to have their CGT cost base reset. This is not essential.
Just like funds that use the segregated method the reset cannot be done until the exact value of the investments are known for a fund that uses the unsegregated method which is also called the proportional method. However, for a fund that uses the unsegregated or proportionate method to work out its tax payable it is possible to reset the CGT cost base on any CGT asset of the fund.
Basically, for an unsegregated fund it is possible to reset the CGT cost base of the fund’s assets if:
Regards
