The ATO has warned that it will crack down on SMSF asset sales.
Former treasurer Peter Costello set up the rules that exempted pensioners over the age of 60 from paying capital gains or earnings tax on their investments.
However, some SMSFs may have been using this rule to avoid tax by selling assets soon after setting up their pension.
Special counsel for Townsend Business & Corporate Lawyers Michael Hallinan says that clients are looking to sell the asset, and they want to sell it tax free so they start up a pension and then segregate the asset.
“The driver is wanting to sell the asset, and the means to do that is to start a pension.”
But he says the ATO may seek to apply an anti-avoidance provision to some of those transactions to reverse the tax retreat. Advisers need to warn clients not to sell their assets as soon as they set up a pension.
“If you started a pension day one, and then three days later you segregated and sold the asset within a very short time after that, that may highlight the interest of the ATO. But if it was done over a longer-term time frame, it may be less likely to be of concern to the ATO.”
Hallinan also says to have some rational justification for switching out of the asset.
“It can be justified on the basis that pensions have to be paid – you need cash. It could be that it’s a good time to sell, that the yield of the property’s not particularly high, it doesn’t support the draw down. Or it could be that they’re just looking to get out of property and into some other form of investment.”
The best counteractive measure would be a combination of both, says Hallinan. Have a justifiable cause, and wait as long as possible to sell the asset.
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