Capital Gains Tax (CGT)

ATO approach to super funds: “Prevention over Correction”

ATO super funds: “Prevention over Correction”, ECPI, apportionment of expenses, claiming imputation credits and carried-forward capital gainsThe ATO has used a recent speech to highlight some of superannuation issues in its sights, including ECPI, apportionment of expenses, claiming imputation credits and carried-forward capital gains.

Titled ATO audits and reviews of super funds in 2014, the speech was given last week to the Tax Institute National Superannuation Conference by the ATO Assistant Commissioner for Public Groups and International, Peter O’Reilly. Though the speech was aimed at APRA funds, much of it is also relevant for SMSFs.

ATO Reinvention program

O’Reilly says that the ATO is currently undergoing a ‘Reinvention Program’, which is intended to “improve the tax and superannuation experience for Australians”, by “designing systems for the majority of taxpayers who do the right thing, not for the small minority who don’t”.

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SMSFs and Share Trading – CGT and Trading Stock

SMSF share trading, trading stock - CGTEvery so often there is a discussion of whether a SMSF can be in the business of share trading. There are two reasons for this discussion,

  • 1 – if the SMSF is in business does this breach the Sole Purpose Test, and
  • 2 – if the SMSF is in the business of share trading as opposed to investing in shares can the fund claim deductions for losses against other income

The Sole Purpose question is a topic for another day, however there is an answer to the second question, or really the answer is moot as the legislation does not allow (with some exceptions) SMSFs to claim deductions for losses on investments on revenue account.

Section 295.85 of the ITAA 97 applies to SMSFs, along with other types of superannuation funds. The effect of this section is to exclude a number of other sections from applying to a CGT event, including:

  • s6.5 – Ordinary Income
  • s8.1 – General Deductions

However the excluded sections can still apply to the event if it meets one of the exceptions – it is “attributable to currency exchange rate fluctuations” or the asset is one of the following:

  • “debenture stock, a bond, debenture, certificate of entitlement, bill of exchange, promissory note or other security;”
  • “a deposit with a bank, building society or other financial institution;”
  • “a loan (secured or not);”
  • “some other contract under which an entity is liable to pay an amount (whether the liability is secured or not)”
  • or the event is disregarded because of one of the sections contained in the table in s295.85:

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