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Does rolling an asset over to another SMSF trigger a CGT event?

Imagine I am the only member of SMSF 1 and I roll assets over to SMSF 2, where I am also the only member: does this trigger a CGT event?

Some answer this with a no. The no is derived on the purported basis that since I am the only member of each fund, I therefore am the only beneficiary of each fund, and therefore there is no change in beneficial ownership, and thus no CGT event.

However, that reasoning — and therefore that answer — is wrong for numerous reasons.

Firstly, even if I am the only member of an SMSF, I am highly unlikely to be the only beneficiary. The key case on this is Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242. In a nutshell, Kafataris confirms that beneficiaries of an SMSF include not just members but anyone who might one day benefit from the fund.

Secondly, it is not necessarily true that beneficial ownership is vested in anyone. See CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98.

Finally, and most importantly, that is just not how the CGT laws are written. Section 104 60 of the Income Tax Assessment Act 1997 (Cth) provides that a ‘CGT event E2 happens if you transfer a CGT asset to an existing trust’. Naturally, the new SMSF will be an existing trust. There is an exception that this CGT event does not occur if ‘you are the sole beneficiary of the trust and … you are absolutely entitled to the asset’, however, Kafataris illustrates that this exception essentially will never apply to an SMSF.

So, in short, rolling assets over from one SMSF to another does trigger a CGT event.

(Naturally, the pension exemption might have some impact on the practical effect, but that is a different question.)

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