• The effect capital gains and capital losses have on an SMSF's claim for ECPI

    The effects of capital gains and capital losses are different for segregated and unsegregated assets.

    If your SMSF only has segregated current pension assets, you should ignore any capital gains or capital losses resulting from the disposal of these assets. If the disposal of a segregated current pension asset results in a capital loss, this loss must not be offset against any other capital gain earned by the SMSF.

    If your SMSF has unsegregated current pension assets, you need to factor in capital gains and capital losses.

    For unsegregated current pension assets, capital losses that arise are not included as deductions when you calculate assessable income.

    If your SMSF has a net capital loss, it can be carried forward each year until it can be offset against an assessable capital gain. The SMSF's capital gain less any capital losses equals the net capital gain.

    The net capital gain is added to the SMSF's assessable income before working out how much of income is tax exempt, as per the actuarial calculation for the relevant year.

    Example 10

    Note: This example uses the same facts as example 1.

    AXY SMSF has two members. It has segregated assets set aside for member A that resulted in a capital gain of $10,000 and derived $50,000 of ordinary income. The other assets set aside for member B derived ordinary income of $25,000 and resulted in a capital loss of $15,000.

    Therefore, the ECPI is the $50,000 for member A. The $10,000 capital gain from these segregated assets is ignored. The $15,000 capital loss from the other assets is carried forward to future years until it can be set off against an assessable capital gain. This would be shown on the SMSF annual return as follows:

    Example of SMSF annual return labels

    Item

    Value and label

    Net capital gains

    $0 (included at item 10 label A)

    Other income

    $75,000 (included at item 10 label S – it is assumed it is 'other assessable income')

    Total assessable income

    $75,000 (included at item 10 label V)

    less ECPI

    $50,000 (included at item 11 label K)

    equals Taxable income

    $25,000 (included at item 11 label O)

    Capital loss carried forward

    $15,000 (included at item 13 label V)

     

    End of example

    Complete a Capital gains tax (CGT) schedule 2016 (NAT 3423) if your SMSF has one or more CGT events that happen during the income year and either:

    • a CGT event happens in relation to a forestry managed investment scheme interest that is held other than as an initial participant
    • the total current year capital gain or capital loss is greater than $10,000.

    See also:

    Non-arm's length income and assessable contributions

    When calculating the amount of ordinary income and statutory income of the SMSF that is exempt from income tax, non-arm's length income and assessable contributions are excluded from the calculation.

    Record these income types in the SMSF annual return under the relevant income labels but not include them when you calculate the SMSF's ECPI.

    Generally, assessable contributions are contributions paid to an SMSF either:

    • on behalf of a member (such as super paid by an employer on behalf of an employee)
    • if a member has claimed a personal deduction for those contributions.

    Income is non-arm's length income if the:

    • parties to a transaction or a series of transactions are not dealing at arm's length
    • income derived from the transaction is greater than might have been expected had the parties been dealing at arm's length in relation to the transaction.

    Non-arm's length income includes income such as private company dividends (including non-share dividends) and certain distributions from trusts.

    See also:

    • TR 2006/7 Income tax: special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income
      Last modified: 30 Jun 2017QC 21546