How to record Transitional CGT Relief (Cost base reset)

Details

Where individuals need to commute superannuation income streams to transfer amounts from the retirement phase to the accumulation phase to comply with the transfer balance cap, earnings on assets supporting these commuted balances will become taxable.

Similarly, where individuals have a TRIS, earnings on assets supporting these superannuation income streams will become taxable from 1 July 2017 as they will no longer be in the retirement phase.

The CGT Relief provides relief for Self-Managed Superannuation Funds (SMSFs) from the tax consequences for capital gains accumulated before 1 July 2017 where these gains would have been exempt income if realised prior to a commutation being made to comply with the transfer balance cap or the change to the treatment of TRIS.  The assets must be held during the pre-commencement period of 9 November 2016 to just before 1 July 2017 (pre-commencement period) in order to be eligible.

The superannuation fund must choose to apply the relief if they wish to do so which are:

• the choice to reset the cost base of a CGT asset to its market value when the asset ceases being a segregated current pension asset during the pre-commencement period.
• the choice to reset the cost base for an unsegregated CGT asset to its market value on 30 June 2017, where the fund holds the asset throughout the pre-commencement period.

CGT relief is not automatic. The trustee of a complying superannuation fund must choose for CGT relief to apply for a CGT asset. The choice is irrevocable and must be made on or before the day a trustee is 'required to lodge' their fund's 2016-17 income tax return.

Pre-Requisites

Prior to resetting the cost base of the fund's assets, it is recommended that the following is done:

Fund 

• All transactions have been entered in for 2016/2017.
• Enter all transactions which affect the Cost base for 2016/2017 e.g. Tax Deferred Distributions.
• Unsegregated funds should have applied for an Actuarial Certificate and the actuarial percentage has been entered in Fund Pension Policies for the 2016/17 Financial Year.
• All assets should have a Market Value as at 30/06/2017 (or reset date). Refer to Securities for more details.
• Ensure no corporate actions have been processed after 30/06/2017 prior to recording the cost base reset.

• If you have Created Entries until 30/06/2017, you will need to reverse entries for the last segment. Note: Create Entries is not required to be completed prior to the Cost Base Reset.
• There needs to be at least 1 active pension member.
• If the fund is a 100% pension fund, ensure 100% has been entered as the actuarial percentage in the Fund Pension Policies for the 2016/17 Financial Year.

Assets

• Assets should be unitised with at least 1 unit.
• Only assets purchased prior to 09/11/2016 will be available for reset.
• For Segregated Assets, assets must be allocated to a Pool with at least 1 pension member.
• Assets purchased prior to 20 September 1985 (pre CGT) will not appear.

Navigation

CGT Relief will be processed from the Corporate Actions screen.

From the Main Toolbar, go to Investments.
Select Corporate actions from the list.

The buttonwill display during the 2016/2017 Financial Year.

A list of the fund investments/parcels will display under the Proportionate Method and/or the Segregated Method tab depending on which method applies.

Simple Fund 360 will automatically display the investments/parcels under a method based on the following:

Applying the Segregated Method

In the example below the fund is using the segregated method throughout the 2016/2017 financial year and has chosen to reset the cost base for its segregated assets to market value on 16 May 2017. This will create a deemed sale and re-purchase (CGT Event A1) for market value as at 16 May 2017.

Navigate to the Cost Base reset screen and ensure all pre-requisites have been met. The screen is divided into the following two steps:

Step One - Select Assets to Reset Cost Base

• Input the date on which to reset the assets in the Disposal Date field.
• Investments can be selected on the basis of the entire asset or on a per parcel level.
• Only Investments which are Unitised will be displayed.
• Parcels which have future CGT Transactions i.e. Post 30 June 2017 will be highlighted in red and cannot be selected for CGT Relief. Click here for more details.

Column	Description
Select Assets for CGT Relief	Select the Assets you wish to apply CGT Relief to Individual parcels can be reviewed and selected by clicking on the + icon. Leaving the checkbox unselected will mean that the fund is choosing not to apply CGT relief to that asset or parcel.
Code	The Investment Code from the Chart of Accounts will display.
Date	When an asset is expanded, the Contract Date will display for each parcel.
Units	The number of units for the Asset or Parcel will display
CGT Cost	The CGT Cost Base for the Asset or Parcel will display. This will include Tax Deferred etc.
Market Value	The recorded Market Value as at the Market Value date will display.
Market Value Date	The date of the Market Value will display. The Market Value is getting picked up from the Investments | Investment Security List screen and will also be based on the Revaluation Order selected in Badges. If there is no market value as at that date, the last price available will be used.
Gross Capital Gain/(Loss)	The Capital Gain or Loss for the Asset or Parcel will display. This does not include any applicable discount.
Discounted Gain	This will equal the Gross Gain less CGT Discount.
	Select Next to proceed to Step Two.

Step Two - Calculate Notional Gain

Step Two will display the assets and parcels selected at Step 1.

Field	Description
Code	The Investment Code from the Chart of Accounts will display.
Asset	The name of the Investment will display.
Capital Works Expenditure	If you need to make any adjustment regarding Capital Works for an investment property, select + Capital Works Exp and input the expense amount. The CGT Cost and Net Capital Gain/(Loss) amounts will then be automatically updated.
Date	When an asset is expanded, the Contract Date will display for each parcel.
CGT Cost	The CGT Cost Base for Asset or Parcel will display. This will include Tax Deferred etc.
Net Capital Gain/(Loss)	The Calculated Net Capital Gain or Loss (as at the reset date) for the parcel or asset will display. This amount will include CGT Discount for Discounted Gains Gains using the Indexation Method will include Indexation. Losses will display in brackets.
Notional Gain	When using the segregated method, any capital loss or gain that arise due to the CGT reset is disregarded. Therefore, notional gain does not apply in this scenario.
	Select Back to return to Step One.
	Select Process Cost Base Reset. Select Process & Prepare Documents to save the screen and prepare the CGT Relief Letter and Minute and CGT Schedule. This will create the necessary CGT Transactions. Select Process only to create the necessary CGT Transactions only.

Applying the proportionate method (Unsegregated)

In the example below the fund is choosing to reset the cost base of an unsegregated asset to market value on 30 June 2017, where the fund holds the asset throughout the period 9 November 2016 to 30 June 2017. This will create a deemed sale and re-purchase (CGT Event A1) for market value as at 30 June 2017.

Navigate to the Cost Base reset screen and ensure all pre-requisites have been met. The screen is divided into the following two steps:

Step Two - Calculate Notional Gain

Step Two will display the assets and parcels selected at Step 1.

Field	Description
Code	The Investment Code from the Chart of Accounts will display.
Asset	The name of the Investment will display.
Capital Works Expenditure	This button will appear next to investment properties for you to input any necessary adjustment for Capital Works. Select + Capital Works Exp and input the expense amount. The CGT Cost, Net Capital Gain/(Loss) and Notional Gain amounts will then be automatically updated. After you process the Cost Base Reset, Simple Fund 360 will post a zero dollar adjustment transaction to the 77200/XXX account. See Transactions for further details.
Date	When an asset is expanded, the Contract Date will display for each parcel.
CGT Cost	The CGT Cost Base for Asset or Parcel will display. This will include Tax Deferred etc.
Net Capital Gain/(Loss)	The Calculated Net Capital Gain or Loss (as at 30 June 2017) for the asset or parcel will display. This amount will include CGT Discount for Discounted Gains Gains using the Indexation Method will include Indexation. Losses will display in brackets.
Notional Gain	If the Notional Gain is not deferred, the fund will apply CGT relief to the asset and recognise any capital gain or loss in the 2016-17 income year. The Capital Gain or Loss will be added to the fund's Net Capital Gain calculation for the 2016/2017 Financial Year. The Notional Gain will be equal to the Net Capital Gain reduced by the Actuarial Percentage (Exempt Proportion) for the year.
Defer Gain	A fund can choose to defer the notional gain.  Simple Fund 360 will store the notional gain against the investment and will automatically include the notional gain when that investment is subsequently sold in the future. Select the checkbox to enable this option.
	Click Back to return to Step 1.
	Select Process & Prepare Documents to save the screen and prepare the CGT Relief Letter and Minute and CGT Schedule. This will create the necessary CGT Transactions. Select Process only to create the necessary CGT Transactions only.

CGT Reset Transactions

Simple Fund 360 will post transactions with the following description:

Cost base reset - <market value date> @market value

If you have entered a capital works expenditure adjustment, Simple Fund 360 will post the following system journal:

Cost base reset - Capital Works Expenditure Adjustment - <Disposal Date entered in the CGT Reset screen>

Reversing the CGT Reset Process

If you wish to reverse the CGT Reset process, you will need to delete the Cost base reset transactions from the Transactions screen.

From the Transactions screen, search for 'cost base reset' and you should be able to see all the transactions created for the Cost Base Reset.

Tick the transactions to remove and select Delete.

Parcels highlighted in red

Refer to the following help page for more details.

Further References

1. ATO Law Companion Guide 2016/D8 - Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds

2. Federal Register of Legislation