The recent changes to superannuation have resulted in the earnings on some member accounts being subject to income tax (where previously they would have been tax-free).
For example, members can only have a pension account balance of $1.6 million as at 1 July 2017. Any amount of the pension that exceeds $1.6 million will need to be commuted back to accumulation. The excess amount commuted back to accumulation will now be taxed at 15% (whereas previously it would have been tax-free). Under the current rules, where members dispose of capital assets and their entire account balance in pension phase, the disposal of the asset will be tax-free. However, where there account balance exceeds $1.6 million and the excess is transferred back to accumulation, the disposal of capital assets after 1 July 2017 may result in a capital gains tax liability.
Further, there are some taxpayers that currently have a transition-to-retirement pension. The earnings on these accounts are presently tax-free. As such, the sale of capital assets supporting the transition-to-retirement pension account are also tax-free. From 1 July 2017, the earnings on transition-to-retirement pension accounts will no longer be tax-free. As such, the future sale of capital assets that support the transition-to-retirement pension account may result in a capital gains tax liability.
For funds with unsegregated assets, members have a choice to reset the cost base of their capital assets to market value as at 30 June 2017. This choice will ensure that the gains already made on the asset are tax-free up to 30 June 2017. The choice can be made on an asset-by-asset basis and once the choice is made, it is irrevocable.
The notional capital gain/loss on the asset will be shown on the 2017 tax return of the superfund. If the asset makes a capital loss, the loss will be disclosed on the 2017 tax return and carried forward to offset against future capital gains. If the asset makes a capital gain, the gain is disclosed on the 2017 tax return but will be tax-free to the extent is supports a pension account as at 30 June 2017. Essentially, if the member makes the election to reset the cost base of the asset, there is a deemed sale and repurchase of the asset as at 30 June 2017 and the net capital gains tax implications of this deemed sale will be disclosed on the 2017 tax return.
Superannuation funds and members will need to carefully analyse whether this election will be beneficial for their member accounts.
Call us today on 56656469 if you would like to discuss how these changes may apply to you.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent,
Jeanette has over 20 years experience as an accountant in public practice. She is a Chartered Accountant, registered tax agent and accredited SMSF Association advisor. When she is not helping business owners grow their empires, you will likely find her out running on the trails or at the gym. Book in to see Jeanette today.
