This is part of series on the necessary changes to strategies and opportunities that have resulted from the pending 1 July 2017 changes which will see earnings on transition to retirement (TTR) pensions subject to 15% tax in the fund.
I know this has created concerns with many trustees and advisers around the question of should you access the relief and if so how to actually access the CGT relief provisions. People want to know what factors they must take in to consideration.
Some of the concerns have been clarified by the ATO. One concern was that trustees would need to commute their TTR pensions and roll back into accumulation before 1 July to access the CGT relief provisions. Those relief provisions would allow the cost base of all or selected eligible assets to be reset to the current market value on a date chosen by the trustees between now and 30 June. This CGT relief allows trustees to in effect, retain the tax-free status of unrealised capital gains accumulated prior to 30 June 2017.
The newly issued ATO issued Law Companion Guideline (LCG) 2016/8 has provided some excellent clarification. If your SMSF is operating as an unsegregated fund, the LCG states that member will not need to commute back to accumulation phase to be able to elect to reset the cost base of assets the wish to elect to apply the CGT relief.
It is intended that the same basis should be available for segregated funds, but the ATO has indicated is still reviewing options for how to make this work in practice. I will try to keep this blog updated with any guidance from the ATO on this matter but please make sure you adviser/administrator is on top of these matters. An SMSF that only has TTR or account-based pensions (and no accumulation phase) is automatically classified as a segregated fund. However if you put in a new contribution, as many are, this year then that money goes in to accumulation and the fund becomes automatically unsegregated. So look at your contribution intentions.
All is not lost as the fund would still have been segregated until that contribution was made and you may elect for that date to be the new CGT cost base valuation date.
Conversations need to start with YOUR advisers and administrators to check whether:
- you should to continue a TTR pension after 1 July 2017 or to commute back to accumulation phase.
- you may have already or can trigger a further condition of release such as leaving any one employment position after age 60. To move from Accumulation or TTR to Account Based Pension
Why are TTR pensions still relevant and for whom
The tax advantages of a TTR pension will reduce when the earnings in the fund start to be taxed on 1 July, but advantages may still arise for members who:
- Are over age 60 and can draw tax-free income from the TTR
- Wish to start accessing super to top-up income or increase income to pay off debts
- Want to be able to nominate an automatic reversionary for estate planning purposes
- Can use salary sacrifice or personal deductions to contribute a higher net amount into super than they need to withdraw.
If the TTR pension is no longer required, care should be taken with the commutation and timing of the commutation to ensure the CGT relief provisions can be accessed on any assets they wish to claim the relief for.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such
The SMSF Coach 
Tina Pham
/ March 8, 2018Hi Liam
Thank you very much for this article.
We have a SMSF having TTRs for both members during 2017FY and using the proportionate method. The SMSF financial adviser has advised to commute their entire TTRs back to accumulation phase on 30/06/2017. Can you please advise in this case will the Super Fund be eligible for CGT relief on 30/06/2017? Does it need to keep at least one TTR through the period from 11/09/2016 to 30/06/2017?
Thanks Liam
LikeLike
SMSF Coach - Liam Shorte
/ March 9, 2018Hi Tina, that is too specific a question to be dealt with here. You should ask the funds actuary and accountant/administrator for specific tax advice which may involve a private ruling from the ATO.
Here are some general pointers but do not rely on this without getting specific advice on your circumstances as too many factors can change the scenario and advice.
LCR 2016/8 explains that even where a TTR pension was commuted and rolled back to accumulation on 30 June 2017, CGT relief may still apply. If both of the members were 100% in TTR than the fund would have been segregated by default at the pre commencement period.
21. CGT relief is available for such an asset provided:
· the CGT asset was a segregated current pension asset at the start of the pre commencement period
· the CGT asset stopped being a segregated current pension asset of the fund at either:
(i) a time during the pre-commencement period, or
(ii) the start of 1 July 2017 because the asset was supporting a TRIS (either of these times is a ‘cessation time’)
· the fund held the asset throughout the pre commencement period (disregarding the deemed sale and repurchase of the asset by the fund because CGT relief applies)
·the fund is a complying superannuation fund from the start of the pre commencement period until the cessation time, and
·the trustee chooses for CGT relief to apply to the asset (in the manner discussed in paragraphs 13 to 16 of this Ruling).
21A. Examples of circumstances in which an asset may cease being a segregated current pension asset during the pre-commencement period include where:
· a member transfers value back to the accumulation phase and the fund re-characterises an asset in that period as a segregated non-current asset to support the value transfer
· an individual discontinues their TRIS and transfers some or all of its value back to the accumulation phase during the pre-commencement period (an asset supporting that value transfer would cease being a segregated current pension asset), or
· a fund starts using the proportionate method during the pre-commencement period.
If the fund had the TTR pensions and some money in accumulation and was unsegregated, and they roll the TTR pensions back prior to 1 July 2017, the CGT relief may still apply if all the other conditions are met and the fund continued to be unsegregated at that point.
Complying superannuation fund continues using the proportionate method in the pre-commencement period, or pooled superannuation trust
81. A complying superannuation fund that continues using the proportionate method throughout the pre commencement period, or a pooled superannuation trust has three options available when choosing to apply CGT relief. To qualify, the trustee must satisfy the conditions in paragraphs 38 or 41G of this Ruling, as applicable.
38. If a complying superannuation fund is using, and continues to use, the proportionate method throughout the pre-commencement period, it may choose CGT relief for a CGT asset provided:[32]
· the fund is a complying superannuation fund throughout the pre-commencement period, and held the asset throughout that period
· for the 2016-17 income year, the average value of the fund’s current pension liabilities divided by the average value of its superannuation liabilities exceeds zero (that is, the proportion in subsection 295-390(3) of the ITAA 1997 exceeds zero)
· throughout the pre-commencement period, the asset was not a segregated current pension asset or a segregated non-current asset, and
· the trustee chooses for CGT relief to apply to the asset (in the manner discussed in paragraphs 13 to 16 of this Ruling).
39. A trustee may choose to apply CGT relief to any, or all, of their fund’s CGT assets that meet the conditions in paragraph 38 of this Ruling.
However, It has been pointed out to me that there was an article in the media in which it suggests that for CGT relief to apply to a fund with a TTR, the TTR needs to be in place as at 1 July 2017. So if the accountant has any doubt they could obtain a private ruling. Please Read
https://www.smsfadviser.com/news/15634-smsf-warned-on-last-minute-cgt-relief-traps?utm_source=SMSFAdviser&utm_campaign=29_06_17&utm_medium=email&utm_content=1
LikeLike
Peter hawketts
/ April 14, 2017If a beneficiary reaches their preservation age in the 2016/17 year and starts a TTR before 30 June using segregated assets method and the fund holds a residential property that has increased in real value by $300K and the fund transfers this asset to the TTR pension assets and then sells the property (IE enters into a contract) at arms length before 30 June will this avoid the capital gain that would apply if they sold post 30 June 2017?
LikeLike
SMSF Coach - Liam Shorte
/ April 14, 2017Hi Peter the answer is it depends! Talk to your accountant and auditor about how they record the capital gain if the fund has only been in pension phase for part of the year. They may need to refer to an actuary. Some treat all the capital gain as occurring in the pension phase while others argue that the gain is averaged over the financial year. The ATO may see your move as a tax avoidance measure so make sure you have good documentation in place. I am working on a similar case so flick me an email to liam@verante.com.au and I will let you know the answer I get.
LikeLike