Mental blank - SMSF CGT relief for cost base reset

If an SMSF has mum & dad & 2 kids, and they can elect to use the CGT relief on all assets, but want to defer the gain. Fund currently 95%+ tax exempt (ie kids have minor balances).

I'm stuck on what's the benefit of the relief?

Assume asset purchased $50
Value at 30/6/17 (reset date) $120
So they reset cost base and realise a gross gain of $70 (and defer that).
Some time in the future (> 1 year) they sell the asset for $150
Now realising gross gain of $30 ($150-reset CB $120) + deferred gain of $70 = $100.
Which is the same as t

So why would they do the cost base reset?
Does it only make sense if you are expecting the tax exempt % to increase?

Hopefully Paul@PFI is around ...

 

What cgt relief?

 

That's what the ATO calls it ...

I've got too many other things buzzing around in my mind to focus on this, thinking I must be missing something?

 

cgt relief for smsf in pension or transition to retirement phase due to the transfer balance cap changes

Transitional CGT relief

do you have a total pension balance greater than $1.6m ?

you need to have made a valid election in the 2016/17 SMSF form ? did you do that ? this is why the ATO extended the lodgement deadlines for SMSFs

 

No, the parents were in TRIS (and are ceasing) so the election is available to them.
Election not yet made (2017 SMSF return not yet done).

ETA: the forms for commutation of TRIS @ 30 June 2017 were done in June 2017.

 

ok cool. it sounds as though there adviser has it all in hand. thats the main thing.

 

The CGT relief only applies to one or more members who EACH have MORE THAN $1.6m at a point in time (29th June 2017) who are forced to reduce their pension to $1.6m. Trick is they may also need to include non-SMSF super in that calc. ie a defined benefit pension from the Gov. So you should not just look at the SMSF. They can choose to trigger a CGT event that preserves all the unrealised portion of CGT at that time. Its a once only event. There are a number of catches to it.

It will be affected by other member but not by much. The other issue is if assets being triggered are seregated at that time or not ? Segregation MUST end at that date if the fund is affected by the $1.6m cap anyway. The reset is done PRIOR to any change in pensions and best that assets are segregated prior to that date as well. Or it can be invalid.

If each member had under $1.6m of pension balances its not relevant and unavailable. The whole concept was to not disadvantage those who had large tax free balances who may lose part of the unrealised CGT. The reset basically treats the excess assets above $1.6m as if the gain to that date is tax free. The costbase resets to the value at 30 June. Its not available to smaller balances as they are still tax free.

Its a 30 June 2017 tax year issue. A bit late to be asking.

 

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The ATO does say CGT relief can apply to assets supporting a TRIS - no need to be over the $1.6m in a TRIS to get the benefit.

LCR 2016/8
"5. ... CGT relief is provided because a member reduces the value of their superannuation income stream before 1 July 2017 to comply with the start of the transfer balance cap reforms. CGT relief is also provided because of the changed treatment of TRISs from 1 July 2017."

In any case, in the context of my original question it seems the choice really needs to be considered in light of where you're expecting the tax exempt proportion to go - up or down (and/or assumptions about asset price movements between the potential reset date and possible future sale compared to original cost).

 

Yep. If other conditions are also met. Its not quite that automatic. If the person is aged 60 or higher at 30 June 2017 then an alternative strategy may also be a tax saver. Only a person aged under 60 may encounter that specific issue. It often highlights a bigger concern - Hopefully you had a segregated assets strategy which may be best ended at 30 June 2017 in many instances

I often find people who think they have a TTR pension when they dont or shouldnt. ie aged 60 or above. Same as heaps of people aged 60+ have accumulation balances when they shouldnt. In which case they cant reset the costbase.

Its important when dealing with a SMSF that you have access to technical guidance re financial and tax issues. One of the failings with SMSFs is significant complexity. SMSFs are not as DIY as portrayed.