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  • Transitional CGT relief

    The objective of the capital gains tax (CGT) relief provisions is to provide temporary relief from certain capital gains that might arise as a result of complying with the introduction of the transfer balance cap, or the transition-to-retirement income stream (TRIS) reforms.

    As a trustee of a fund, you should ensure that any choices regarding the application of CGT relief to assets are consistent with this objective.

    Due to the introduction of the transfer balance cap on 1 July 2017, a member may have needed to reduce amounts supporting retirement phase super income streams to ensure their total amounts in retirement phase did not exceed $1.6 million. CGT relief may be available in these situations.

    From 1 July 2017, assets supporting a TRIS lost their tax exemption on earnings, unless the TRIS is in retirement phase. A TRIS is no longer considered a super income stream in retirement phase, unless your member satisfies a condition of release with a nil cashing restriction. CGT relief may be available where assets were supporting a TRIS that is not in the retirement phase.

    For funds with a member who was in receipt of a TRIS that continues to be in the retirement phase, CGT relief may be available where amounts supporting this TRIS are reduced in order to comply with the transfer balance cap rules.

    When CGT relief isn’t available

    CGT relief is only available in the circumstances outlined above. If a fund did not have members making changes to reduce amounts supporting retirement income streams below the $1.6 million transfer balance cap, or members with a TRIS who are affected by the changes, the trustee cannot apply CGT relief.

    CGT relief will not be available to a fund purely because it needs to use the proportionate method to calculate exempt current pension income (ECPI) due to new restrictions. For 2017–18 onward, an SMSF trustee will be required to use the proportionate method if a member had a total superannuation balance over $1.6 million at the end of the previous financial year, and that member is receiving an income stream from any source.

    Note that these restrictions only relate to the ability of an SMSF to segregate for the purposes of claiming ECPI. Even though the SMSF may be required to use the proportionate method to calculate its ECPI, the trustee can still decide which assets will support income streams for investment returns.

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      Last modified: 25 Jan 2019QC 57803