If you calculated your ECPI using the segregated method at 9 November 2016
You are able to apply relief if you moved an asset from supporting the retirement phase to the accumulation phase before 1 July 2017, if your fund:
- used the segregated method throughout the pre-commencement period, and
- had a member who had to comply with the introduction of the transfer balance cap or TRIS reforms.
This resets the asset’s cost base to its market value at that time.
You are deemed to have sold and repurchased the asset for market value on the day it ceased to be a segregated current pension asset. The resulting gain or loss is entirely disregarded. This is consistent with the fact that the unrealised gain up to this point would have been exempt from income tax if the asset were sold on this day.
You should clearly document the date the assets ceased to be segregated current pension assets.
Example:
John is 65 years old and retired with a retirement phase income stream that has a value of $2 million on 1 March 2017.
John’s fund holds the following assets:
- a property purchased on 1 December 2002 with a cost base of $300,000 (the market value of the property was $500,000 on 1 March 2017), and
- $1.5 million in cash and shares.
The fund uses the segregated method, with all assets supporting John’s income stream. All of these assets were held throughout the period 9 November 2016 to 30 June 2017.
On 1 March 2017, John transfers $500,000 from his retirement phase to the accumulation phase, to ensure he complies with the transfer balance cap.
John’s fund transfers the property (valued at $500,000) out of the pool of segregated current pension assets supporting John’s income stream, to support John’s new accumulation phase interest.
John’s fund applies CGT relief to the property and its cost base is reset to its market value of $500,000 on 1 March 2017. The $200,000 capital gain is entirely disregarded as the property was a segregated current pension asset at the time of the deemed sale (1 March 2017). The gain on this asset, up to this point, would have been exempt from income tax if the asset was sold while it was a segregated current pension asset.
The date John’s fund is deemed to have repurchased the asset for market value is 1 March 2017, as this is when it ceases to be a segregated current pension asset.
John’s fund is not able to use the segregated method in 2017–18, and has to use the proportionate method to calculate EPCI; because John’s total superannuation balance exceeds $1.6 million on 30 June 2017.
End of exampleYou can apply relief to some or all of the assets that were previously segregated, if your fund:
- used the segregated method on 9 November 2016
- switched to the proportionate method during the pre-commencement period or at the start of 1 July 2017 where the switch is due to assets supporting a TRIS that is not in the retirement phase, and
- had a member who had to comply with the introduction of the transfer balance cap or TRIS reforms.
Instead of transferring specific assets to support the accumulation phase, you may have switched to the proportionate method (for example, where you had large assets with high market values, but your members only needed to commute a small amount back to the accumulation phase, as assets cannot be partially segregated).
All your assets that were segregated to support income streams ceased to be segregated from the day you switched methods. This is the cessation time. You can choose to apply CGT relief to some or all of these assets to reset their cost base(s) to their market value at the cessation time. The gain or loss is entirely disregarded.
As you will start to have assets that support both accumulation and retirement phase interests, you are required to obtain an actuarial certificate to support the use of the proportionate method to calculate ECPI.
Example:
Serge and Stephanie are the members and trustees of the SSF Superannuation Fund. The fund has the following member interests and assets at 9 November 2016:
Member interests at 9 November 2016
Interest
|
Value
|
Serge – Account-based pension
|
$600,000
|
Serge – Accumulation
|
$400,000
|
Stephanie – TRIS
|
$1,300,000
|
Fund Assets at 9 November 2016 (segregated)
Name
|
Cost base
|
Market value
|
Asset A
|
$1,500,000
|
$1,900,000
|
Cash
|
N/A
|
$400,000
|
The fund uses the segregated method to calculate its ECPI: Asset A is a segregated current pension asset supporting Serge’s account-based pension and Stephanie’s TRIS.
Stephanie is under 65 and still working, and her TRIS is no longer eligible for ECPI from 1 July 2017 onwards. Stephanie still wants to continue her TRIS in 2017–18.
On 1 July 2017, Stephanie’s TRIS is not a retirement phase income stream, and assets supporting it are no longer segregated current pension assets. The fund cannot identify specific assets supporting Stephanie’s TRIS, so it switches to the proportionate method on 1 July 2017.
CGT relief is available for Asset A as:
- the fund meets the object of the CGT relief provisions because Stephanie’s TRIS is excluded from being in the retirement phase
- Asset A meets the eligibility criteria for CGT relief because
- it was a segregated current pension asset on 9 November 2016
- it ceased being a segregated current pension asset at the start of 1 July 2017 because it was supporting Stephanie’s TRIS
- the fund held Asset A for the entire period from 9 November 2016 to 30 June 2017.
The fund elects to apply CGT relief to Asset A, resetting its cost base to its market value on 1 July 2017. The capital gain arising out of the application of CGT relief is disregarded as the deemed sale for CGT relief occurred on 30 June 2017, while Asset A was a segregated current pension asset.
In the CGT Schedule to its 2017 self-managed superannuation fund annual return, the fund selects ‘Yes’ at label 8F – Have you chosen to apply the transitional CGT relief for superannuation funds?’. The fund needs to keep records of the new cost bases of its assets so that it can calculate its capital gains tax correctly when assets are sold.
End of example