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Demystifying capital gains tax misconceptions

Capital gains tax, CGT, Darren Wynen, Tax Banter, Insyt, SMSF, EOFY, end of financial year

Many Australians have a mistaken belief that capital gains tax relief could come at a price due to a misunderstanding around the timing for such tax events for funds that were segregated before 30 June, an expert says.

Darren Wynen from TaxBanter and Insyt says funds that were paying an account-based pension above $1.6 million had to commute the excess back to accumulation before 30 June.

“Some practitioners have been worried that because there was a day in accumulation that the deemed capital gain on triggering the CGT relief under the segregated method will not be fully tax exempt and that’s incorrect,” Mr Wynen said.

“The way the legislation works is that the CGT event is triggered just before the cessation time, so if the assets were segregated, then the gain will effectively be tax free when the relief is triggered, and the legislation makes that clear.”

Some SMSF practitioners are concerned that because there was $400,000 in accumulation phase on 30 June, for example, the capital gain that was triggered is going to be partially taxable because it’s based on the $400,000 in accumulation and $1.6 million in pension which is effectively 20 per cent, which is incorrect, Mr Wynen said.

“If they had commuted just before the 30th of June, then that gain might have been triggered on the 29 June which is when the fund was wholly segregated and, therefore, the gain is completely exempt,” he said.

“So people are worried that the segregated relief is going to come with a sting in the tail but the benefit of segregated assets is that the gain is completely disregarded.”

Demystifying capital gains tax misconceptions
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