Units trusts and cost base resets under the TBC

A Matter of Trusts

Taxation in Australia

The new superannuation laws have recently been passed by the federal government.1 The new laws include the introduction of the transfer balance cap (TBC). The TBC limits the amount a member can transfer into a pension account in a super fund. The initial cap will be $1.6m.
As a result, from 1 July 2017, members who have pension account(s) in excess of $1.6m will have to commute their pension(s) back to a balance of $1.6m. This will result in a reduction of the amount of assets that affected super funds can have in “pension phase” (ie where earnings and capital gains are tax-free).
In order to reduce the retrospective effect of these measures, affected super funds can elect to reset the cost base of capital assets to equal market value on 30 June 2017.
While the cost base reset provides welcome relief for assets held directly by super funds, as outlined below, the operation of the cost base reset, where the super fund holds units in a private unit trust (or shares in a private company), does not always provide full relief from CGT.
In this article, the cost base reset rules are examined first. Then the problems with units are considered. Finally, options available for such units are discussed. Although the measures apply to all super funds, this article only examines the reset from the perspective of a self-managed superannuation fund (SMSF).

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