The ATO has released the 2017 self-managed superannuation fund (SMSF) annual return and instructions. Key changes for 2017 include the transitional CGT relief for super funds as part of the 1 July 2017 reforms, reporting on limited recourse borrowing arrangements (LRBAs) and early stage investor tax incentives. 

CGT relief for super reforms

The instructions note that transitional CGT relief is available for SMSFs to provide relief from certain capital gains that might result from individuals complying with the transfer balance cap and transition-to-retirement income stream (TRIS) reforms, which commence on 1 July 2017. This CGT relief is not automatic and must be chosen by a trustee for a CGT asset. It applies on an asset-by-asset basis to assets held at all times between the start of 9 November 2016 to just before 1 July 2017.

If CGT relief is chosen, the trustee will need to advise the ATO in the approved form (the CGT schedule). The CGT schedule must be received by the ATO on or before the day the SMSF is required to lodge its 2017 SMSF annual return. A choice to apply CGT relief is irrevocable. Item 8 of the CGT schedule asks whether the fund has chosen to apply the transitional CGT relief for superannuation funds. The notional capital gain amount deferred must be listed at label G.

LRBAs and early stage investors

Additional questions have also been added to the SMSF annual return about the use of LRBAs and additional borrowings. If a fund reports LRBA assets, details are required about the financing arrangements, such as whether finance was obtained from a licensed financial institution and whether the member or related parties of the fund used personal guarantees and other security for the LRBA. The SMSF return also requires additional information from SMSF investors who may be eligible for tax incentives and modified CGT treatment for investments in a qualifying early stage innovation company from 1 July 2016.

SMSFs: pre-1 July 2017 commutation of death benefit income streams

Practical Compliance Guideline PCG 2017/6 sets out a practical administrative approach to help SMSFs comply with the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) if they have received a superannuation lump sum resulting from the pre-1 July 2017 commutation and roll-over of a death benefit income stream.

The ATO is aware that industry participants have inferred (from TD 2013/13) that s 307-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides a mechanism for a deceased member's spouse to roll over a death benefit income stream and retain the amounts as her/his own superannuation interest, without needing to immediately cash out that benefit. This has resulted in a number of death benefit income streams being commuted, rolled over and treated as the spouse's own superannuation interest, with the amounts becoming mixed with the spouse's other superannuation interests and/or remaining in the accumulation phase. However, the ATO's view is that rolling over a death benefit income stream does not change a superannuation provider's obligation to cash the deceased member's interest as soon as practicable (as a superannuation lump sum and/or a death benefit income stream).

The Guideline acknowledges that funds would face significant practical difficulties (in tracing, valuing and then cashing death benefits) if they were required to apply the Commissioner's position. Accordingly, the Guideline advises that the ATO will not apply compliance resources to review whether an SMSF has complied with the compulsory cashing requirements relating to a death benefit (as set out in reg 6.21 of the SIS Regs) if all of the following requirements are satisfied:

  • the SMSF member was the deceased's spouse at the date of death;
  • the commutation and roll-over of the death benefit income stream occurred before 1 July 2017; and
  • the superannuation lump sum paid from the commutation is a member benefit for income tax purposes because it satisfies s 307-5(3) of ITAA 1997.