If you calculated your ECPI using the proportionate method
You can choose to apply CGT relief to some or all of your assets to reset their cost bases to their market values at 30 June 2017, if your fund:
- used the proportionate method throughout the pre-commencement period
- had a member who had to comply with the introduction of the transfer balance cap or TRIS reforms.
You may make a capital gain from this reset. Where these assets have only been partially supporting income streams, you may have to pay tax on some of the capital gain.
You can recognise any capital gain or loss in the 2016–17 year and the CGT discount may apply if you held the asset before 30 June 2016. The capital gain or loss is included in your net capital gains calculation for the year, alongside other capital gains or losses for the year, and any carried-forward capital losses.
Alternatively you can choose to apply the CGT relief and defer the capital gain. You need to calculate the capital gain as if it were not being deferred, taking into account any applicable discount, but not applying any capital losses. The calculated capital gain is then deferred and recognised in the year that you cease to hold the asset. You cannot defer a capital loss, although you can carry it forward under the ordinary rules for capital losses.
Example:
Craig and Julie are the members and trustees of their SMSF, the CJ Superannuation Fund. The fund has the following interests and assets at 9 November 2016.
Member interests
Interest
|
Value
|
Craig – Account- based pension
|
$2,000,000
|
Julie – Accumulation
|
$1,000,000
|
Fund Assets (~66% exempt)
Name
|
Cost base
|
Market value
|
Asset A
|
$2,500,000
|
$2,650,000
|
Asset B
|
$250,000
|
$350,000
|
The CJ Superannuation Fund uses the proportionate method to calculate its ECPI and has been doing so for several years. In 2016–17, the fund's exempt proportion as calculated by an actuary is 66%.
To comply with the transfer balance cap, Craig partially commutes $500,000 of his income stream account back to the accumulation phase on 30 June 2017, leaving him with an income stream worth $1.5 million.
The combined cost base for both assets is $2.75 million, meaning that it had already accrued unrealised capital gains of $250,000 at 9 November 2016. However, the fund anticipates having a greater exempt proportion by the time the assets will be sold, as Julie is close to retirement.
Therefore, the fund does not apply CGT relief and the cost base of the assets remains $2.5 million and $250,000 for assets A and B respectively.
End of example