Administration, SMSF, Tax

Capital gain classification key to tax benefit

Capital gains Capital gains tax Offset capital gains tax deferred notional gains SMSF

The tax position of an SMSF can be maximised by recognising the types of capital gains ineligible to have the allowable discount applied to them.

A taxation specialist has reminded practitioners to properly characterise the types of capital gains an SMSF may have incurred in order to maximise the tax position of the fund.

To this end, Accurium head of tax education Lee-Ann Hayes said capital gains that carry a specific exclusion need to be identified.

“We can choose which gains we offset our losses against and what you want to do is make sure that you’re maximising your losses the best that you can,” Hayes explained.

“[So] what we [should] look for is offsetting the losses against gains that can’t be managed [by applying the one-third discount rule] because some of the gains that we might make may not be eligible for a discount.”

Specifically, she pointed out trustees should be looking for items such as capital gains tax deferred notional gains arising from the recalculation of asset values in 2017 when the transfer balance cap was introduced.

Other elements she said should be identified are non-indexed and non-discounted gains, or indexed gains.

“So what we’re doing is using the losses up against gains that we can’t discount [and] getting [a] further [tax] advantage by leaving the [gains] that we can discount at a higher [dollar figure],” she noted.

According to Hayes, some automated administration services may require review to ensure they are not hampering this approach.

“[You should] just watch your [administration and accounting] software defaults [because] you might have [selected] some preselected defaults to make sure that you’re maximising profits, or something like that on an ongoing basis, and that might just give an anomalous result here,” she suggested.

She reiterated the process of calculating an SMSF’s capital gains tax liability requires capital losses to be offset against capital gains before the one-third discount is applied.


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