While the lodgement date for a 2017 self-managed superannuation fund annual return has passed, some SMSFs may have yet to submit their tax return. The due date was 30 June 2018. However, as the due date falls on a weekend, lodgement no later than Monday 2 July 2018 was accepted.
The major impact for an SMSF not lodging their 2017 tax return by the due date is they may become ineligible to claim the transitional capital gains tax (CGT) relief. The transitional CGT relief provides a significant tax advantage for SMSFs with members who have to adjust their asset allocation to comply with the transfer balance cap (TBC) and/or transition to retirement income stream (TRIS) reform.
I’ve explained the TBC and TRIS below:
- Transfer balance cap: Due to the introduction of the transfer balance cap on 1 July 2017, an SMSF member may have needed to reduce amounts in their retirement pension account to ensure their total amounts in retirement phase does not exceed $1.6 million.
- Transition to retirement income stream: From 1 July 2017 assets supporting a TRIS lost their tax exemption on earnings, unless the TRIS is in retirement phase.
SMSFs can use transitional CGT relief for temporary relief from certain capital gains that result from members complying with the TBC rules or TRIS reforms. The transitional CGT relief applies to certain CGT assets held by SMSFs at all times from 9 November 2016 to 30 June 2017.
If an SMSF chooses to apply transitional CGT relief to an asset, it creates a deemed 2016/2017 CGT event. In the SMSF’s 2017 tax return (NAT 71226), the SMSF trustee must answer “Yes” at Label G in Section B where it states “Did you have a capital gains tax event during the year?”. In addition, in the SMSF’s 2017 CGT Schedule (NAT 3423), the SMSF must answer “Yes” at Label F at Question 8 where it states “Have you chosen to apply the transitional CGT relief for superannuation funds?”. The SMSF may also need to include the amount of the resulting capital gain or loss on both the 2017 tax return and the 2017 CGT schedule.
The need for an SMSF to report the above information depends on whether the SMSF applied the segregated or unsegregated (proportionate) method in relation to asset when calculating the exempt current pension income; whether the deemed CGT event resulted in capital gain or loss; and, whether the SMSF chose to defer a capital gain.
If the asset was a segregated current pension asset, the SMSF does not need to include the amount of the resulting capital gain or loss in the 2017 tax return. This is because the capital gain or loss is disregarded under the segregated method.
If the asset was an unsegregated pension asset and the deemed CGT event resulted in a capital gain, the SMSF will need to choose either to include the amount of the capital gain in the 2017 tax return or defer the capital gain until the asset is disposed of in a later financial year. If the SMSF chooses to defer the capital gain, they do not need to report the amount of the gain on the 2017 tax return, but do need to report the amount on the 2017 CGT schedule.
If the asset was an unsegregated pension asset and the deemed CGT event resulted in a capital loss, then the SMSF cannot defer the capital loss and must report the amount of the loss on the 2017 tax return.
The Commissioner of Taxation has confirmed that where an SMSF was unable to lodge their tax return on time, the SMSF trustee can advise their accountant to submit the lodgement deferral via the Tax Agent Portal.
The deferral will give SMSF trustees extra time to review their personal circumstances to decide whether to apply for the transitional CGT relief or not. This decision is irrevocable and the wrong decision could leave SMSFs and their beneficiaries worse off.
Where an SMSF has not lodged its tax return, they may risk losing the benefit of the transitional CGT relief.