The contribution formed part of a new accumulation phase account for that member, as contributions cannot be added to existing income streams. This means that the fund stopped being ‘100% in pension phase’ from the date the contribution was received.
If the fund has clearly documented that it continued to set aside certain assets after it received the contribution, those assets can continue to be segregated current pension assets until a later date. The fund may then be able to access CGT relief if they subsequently switched to the proportionate method later in the pre-commencement period.
If there is no evidence of a decision to remain segregated, the assets ceased to be segregated current pension assets on the date of the contribution. CGT relief may be available on that date provided the other eligibility criteria are met.
Example:
John and Lucy are the members and trustees of their SMSF, the JL SMSF. The JL SMSF has the following assets and members interests at 9 November 2016:
Member Interests at 9 November 2016
Interest
|
Value
|
John – Account-based pension
|
$1,800,000
|
Lucy – Account-based pension
|
$1,200,000
|
Fund Assets at 9 November 2016 (segregated)
Name
|
Cost base
|
Market value
|
Asset A
|
$1,400,000
|
$2,000,000
|
Asset B
|
$600,000
|
$800,000
|
Cash
|
N/A
|
$200,000
|
As the only interests in the JL SMSF are supporting account-based pensions (that is, it is ‘100% in pension phase’), the fund’s assets meet the definition of segregated current pension assets. In other words, the fund is deemed to be using the segregated method for the purposes of its exempt current pension income.
On 2 March 2017, Lucy makes a $300,000 non-concessional contribution to the JL SMSF. The contribution is held in an accumulation account for Lucy. At this point, the fund is no longer ‘100% in pension phase’ and the fund’s assets no longer automatically treated as segregated current pension assets.
The fund has two options:
- Option A – The fund documents that it has specifically identified Asset A, Asset B and the $200,000 cash that was already in the fund to treat as segregated to support John and Lucy’s account-based pensions. This requires the fund to hold the $300,000 contribution separately. In this case, the fund’s assets may continue being segregated current pension assets until a later date.
- Option B – The fund does not specifically identify assets to support the account-based pensions. This will mean the assets will cease to be segregated current pension assets on 2 March 2017, and the fund will instead adopt the proportionate method from this date to calculate its exempt current pension income.
The JL SMSF chooses Option B and on 2 March 2017 it switches to the proportionate method. On 2 March 2017, the fund’s member interests and assets are now as follows:
Member interests at 2 March 2017
Interest
|
Value
|
John – Account-based pension
|
$1,836,000
|
Lucy – Account-based pension
|
$1,224,000
|
Lucy – Accumulation
|
$300,000
|
Fund assets at 2 March 2017 (~91% exempt)
Name
|
Cost base
|
Market value
|
Asset A
|
$1,400,000
|
$2,050,000
|
Asset B
|
$600,000
|
$810,000
|
Cash
|
N/A
|
$500,000
|
CGT relief is available for Assets A and B as:
- the fund meets the object of the CGT relief provisions because John needs to commute amounts out of retirement phase to avoid exceeding the transfer balance cap. John does not need to make this commutation until 30 June 2017, but this does not prevent CGT relief from being available
- the assets meet the eligibility criteria for CGT relief because
- the assets were segregated current pension assets on 9 November 2016
- the assets ceased being segregated current pension assets on 2 March 2017 (which is within the pre-commencement period)
- the fund held the assets for the entire pre-commencement period.
The fund elects to apply CGT relief to Assets A and B, resetting their cost bases to their market values on 2 March 2017. Capital gains arising out of the application of CGT relief are disregarded, as Assets A and B were segregated current pension assets when the deemed sale for CGT relief occurred.
As the fund uses the proportionate method for the remainder of the 2016–17 year, a proportion of its earnings from all of its assets will be subject to tax, and the fund will need an actuarial certificate to support its claim for ECPI in this period.
In the CGT Schedule to its 2016–17 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 those assets are sold.
End of example