Mark to Market Rules will enable certain Superannuation Fund’s (SMSFs) under certain conditions to uplift their cost base of assets to mark value (parcel by parcel allocation permitted).
Special conditions include:
For all ABP’s, at least one pension member has more than $1.6m in pension mode at 30 June 2017 (unsegregated)
For SMSFs with all members under $1.6m at 30 June 2017, at least one member would need to be in a TRIP (Transition to Retirement Pension) to access these rules
Only applies to assets held at 9 November 2016 (not if purchased thereafter)
If the SMSF is all in accumulation mode in the 2016/2017 financial year you cannot access these provisions
An election needs to be made on the 2017 Tax Return to access these provisions
If eligible for mark to market rules there are some further choices:
Uplifting to market value and paying the Capital Gains Tax on the 2017 tax return or
Deferring the Capital Gains Tax until the asset is sold.
Be cautious as to the actuary percentage for unsegregated SMSFs for the 2017/2018 financial year. This will impact the amount of Capital Gains Tax on the application of the Mark to Market Rules.
Mark to Market of Cost Base Rules
Uplifts the cost base of Superfund Assets to market value (by an election) in certain circumstances.
Only applies to assets held at 9 November 2016 not assets bought after 9 November 2016.
The Superannuation Fund must “opt in” and you have until 15 May 2018 (the lodgment date of the tax return to make the election.
You can select which assets you would like this to apply to (you would not apply this to any assets in an unrealized loss position).
Different rules for Segregated and Unsegregated Superannuation Funds.
Need to restructure pensions to comply with the new $1.6m rules to access the mark to market rules. Certain other conditions may need to be met to access the Mark to Market Rules.
Mark to Market of Cost Base Rules – Unsegregated Funds (ie. actuary certificate)
SMSF must have an actuary certificate with an actuary percentage of more than 0% (a fund 100% in pension is deemed to be a segregated fund.
Member accounts don’t have to be in pension mode on 9 November 2016 (but it is preferable to have as much of the fund in pension mode 1 July 2016 to provide for a higher tax free actuary report on income).
Caution – reset of cost base restarts the 12 month holding rule for discounting of Capital Gains Tax.
Caution – for funds not close to 100% in pension mode you will either pay some tax on the 2017 tax return on the capital gain or when the asset is sold.
Can select parcels of assets you want to mark to market.
Mark to Market of Cost Base Rules – Unsegregated Pension Funds (ie. actuary certificate)
Carefully review all assets and cost base (particular attention to 30 June 2017).
Hold off on lodging most 2017 Pension SMSF returns until May 2018 to ensure you understand the capital gains implications of assets sold between 1 July 2017 and May 2018.
Do not mark to market assets in an unrealized loss position.
In most cases you would apply a reset of cost base at 30 June 2017 (as this is the date Superfund accounts are generally completed).
Mark to Market of Cost Base Rules – Segregated Funds (allocated assets)
To access mark to market rules – must have been segregated on 9 November 2016 and then cease to be segregated at any point before 1 July 2017.
Pension must have been in place by 9 November 2016.
Mark to market date is the date when they cease being segregated (meaning the trustee choose to pool the assets as a collective as opposed to segregated assets). Date must be between 10 November 2016 and 30 June 2017.
If one member of a segregated fund commutes a pension to comply with the new $1.6m rules then the date of commutation would be the mark to market (generally most people will do the commutation on 30 June 2017 to avoid an impact on income tax at the SMSF level).
Watch unlisted assets, unlisted property as to the valuation requirements for the new rules.
Contact Foundation Advisory to find out about how these changes may apply to you, Phone 03 9878 7647 for an obligation free meeting.
GENERAL ADVICE WARNING –THE INFORMATION IN THIS ARTICLE IS OF A GENERAL NATURE. PLEASE NOTE THIS ARTICLE DOES NOT TAKE YOUR SPECIFIC NEEDS OR CIRCUMSTANCES INTO CONSIDERATION. YOU SHOULD LOOK AT YOUR OWN FINANCIAL POSITION, OBJECTIVES AND REQUIREMENTS AND SEEK FINANCIAL ADVICE BEFORE MAKING ANY FINANCIAL DECISIONS.
