There has been talk about the government considering reducing the capital gains tax (CGT) discount for super funds. The looming federal budget being delivered on May 10 is an opportunity for the government to address any perceived inequities in the system.
Prime Minister Malcolm Turnbull told federal parliament that taxes on earnings in the accumulation phase were “remarkably low” and “very concessional”, while Scott Morrison has said that any changes would be focused on creating a “fairer, more sustainable retirement income system for a 21st century economy”.
While the likelihood of changes to CGT in the short term seems to have diminished, it is important for SMSF trustees and advisers to be reminded of any possible impact changes may have.
Reducing the CGT discount for super funds would impact members in public offer funds as the net after tax returns would be reduced. However, SMSFs can be protected to a large extent from capital gains tax (and therefore any change to CGT rules) due to the unique nature in which a fund can transition from accumulation to pension.
If SMSFs are able to delay the realisation of capital gains until after the fund converts to a pension, the gain is exempt from tax. Other funds do not have the same flexibility.
Obviously a reduced CGT discount would adversely impact SMSFs should assets be sold during accumulation, but it does allow SMSFs to plan to minimise any CGT, particularly where a member is nearing retirement age.