Article:

Transitional CGT relief

13 March 2017

Lucy Goosey is the sole member of the Golden Goose Super Fund (GGSF).

At 30 June 2017, Lucy is 70 years of age and her pension account balance is $3.2m. i.e. 100% of her retirement savings are in pension phase.

The Golden Goose Super Fund purchased 100,000 Old MacDonald shares (OMac) (an ASX listed company) on 30 June 2007 for $100,000.

On 30 June 2017, the OMac shares are valued at $200,000, with the remaining $3m of Lucy’s balance being held in cash.

Because of the super changes, on 1 July 2017 Lucy commutes $1.6m from pension phase back to accumulation phase in her super fund.

This means that Lucy’s fund is only 50% tax exempt from 1 July 2017.

Without CGT transitional relief, if the GGSF sells all of its’ holding of OMac shares on say 1 July 2027 for $400,000 capital gains tax of $10,000 would have applied, as follows;

  • $300,000 gain, apply 1/3rd CGT discount = $200,000 capital gain
  • $200,000 x 15% CGT = $.30,000
  • $30,000 x 50% tax exempt status = $15,000 CGT.

However, because the trustee of the GGSF can elect to reset the cost base of the OMac shares to their market value at 1 July 2017, i.e. $200,000, the GCT calculation in 2027, after applying the CGT relief will be:

  • $200,000 gain, apply 1/3rd CGT discount = $133,333 capital gain
  • $200,000 x 15% CGT = $.30,000
  • $20000 x 50% tax exempt status = $10,000 CGT.

As you will gather from the above brief summary, the CGT transition relief measures are very complex and involve analyzing whether a superannuation fund should apply for CGT transition relief and if so, which assets or pool of assets the transitional CGT relief should apply to.

If you have any questions or would like to discuss your situation with one of our Wealth Advisers please contact your BDO advisor or a member of our Private Wealth team