Failure to lodge your return on time could result in you missing out on CGT relief altogether.
The mad panic that gripped the self-managed superannuation fund (SMSF) industry in the lead up to June 30, 2017 is definitely not there this financial year.
There are, however, a number of key things that need to be considered before June 30, 2018 that relate back to the significant changes implemented in the 2016-17 financial year.
First, as most will recall, there was capital gains tax (CGT) relief provided for members with pension balances over $1.6 million. This was designed to compensate members for any CGT they will now pay on assets sold in the SMSF after July 1, 2017 that are not in pension phase (ie, member balances above $1.6 million).
The CGT relief choice, namely the segregated or proportionate options, was set in the 2016-17 financial year and cannot be changed now.
However, as you lodge your 2016-17 return as an SMSF member, you need to elect which assets as at June 30, 2017 you want the cost base to be reset to market value. The choice of segregated or proportionate will determine the date for the market value "refresh".
Note the CGT discount "12-month period" will also reset if you elect to apply for CGT relief and refresh cost bases, so you need to be careful if you sold assets in the 2017-18 financial year on the belief that you could access the CGT discount.
Essentially there are three choices: you can choose (on an asset by asset basis) not to apply the CGT relief and the assets retain their original cost base; you can apply the CGT relief (on an asset by asset basis) and pay tax now on the net taxable capital gain; or you can apply the CGT relief (on an asset by asset basis) and defer the tax on the capital gain until the assets are actually sold. The key is that these decisions must be notified as part of the June 30, 2017 SMSF return.
How to decide
The choice will generally be determined by whether the asset is in a capital gain or capital loss position, the time period you intend to hold the asset and the likely capital growth for that asset after July 1, 2017. While most members will make a blanket call on all their SMSF assets, it might be wise to retain an original cost base in some limited circumstances such as a capital loss position.
With more members retaining accumulation accounts in their SMSF after July 1, 2017, it is also worthwhile checking whether you have taken the opportunity to take money out of your accumulation member account after July 1, 2017, and recontribute it to your spouse's account where they are under the $1.6 million pension balance.
While a lot of restructuring occurred as at June 30, 2017, you may have agreed to move some of your accumulation balance money out on July 1, 2017 but may not have got around to moving the money or completing the documents.
Where your spouse has decided to start a new pension with the contribution – either as a new separate pension or stopping an existing pension to add the contribution and then starting a new pension – you need to ensure that you have taken out the minimum annual pension payment before June 30, 2018.
Failure to meet this requirement by this date will mean that the pension was not in existence at July 1, 2017, and any withdrawals taken during the year will not be treated as pension payments.
While things may well be quieter this June 30, many SMSF administrators and accountants are still scrambling to meet the June 30, 2018 deadline for lodging the 2016-17 SMSF returns for clients. If your pension balance is over $1.6 million you will need to take extra care in providing instructions with respect to CGT relief. Failure to lodge your return on time could result in you missing out on this relief altogether.
By Ben Smythe (partner and principal adviser of Minchin Moore Private Health)
19 June 2018