Nick Bruining Q+A: Things to consider if you want to sell shares before capital gains tax changes

Question

In the past few weeks, my husband has received a reasonable portfolio of quality shares from his deceased father’s estate.

We have complete records, including the dates and values when the shares were originally purchased by his father, and when they were transferred to my husband.

We’re not sure how capital gains tax will apply if we decide to sell them.

I am also wondering whether we should sell them before next year’s changes to the capital gains rules.

Answer

Given the shares have now been transferred out of the estate and into your husband’s name, the following will apply.

If any of the shares were acquired before September 19, 1985 then the “cost base” used to calculate your husband’s CGT liabilities will be the value as at the date of his father’s death.

If those shares are disposed of between now and June 30 next year, then 50 per cent of the gain will be added to his other assessable income this financial year.

For shares acquired after September 19, 1985 your husband effectively inherits his father’s cost base, and if sold before June 30, 50 per cent of that profit is added to his other assessable income and he pays tax based on his marginal rate of tax.

In this case, there is no special CGT rate.

If any shares are sold after July 1 next year, then the 50 per cent gain up until June 30 is effectively crystallised. To that is added the full increase in share value, less an allowance for inflation from July next year up until the actual sale date.

Unless he in receipt of a full or part Centrelink income support payment, like the age pension, the post-July 2027 “profit” will be subject to a minimum 30 per cent tax rate.

With all that, you need to critically weigh up the comparable income you might generate off an alternate investment after all the tax and charges are paid.

If there’s no actual need for a lump sum, you may find yourselves worse off compared with these blue chip shares paying regular dividends with included tax credits.

Question

I am writing on behalf of my daughter who is in her 30s.

Earlier this year, her partner established a self-managed superannuation fund and transferred his and my daughter’s super into it, which totalled about $200,000.

My daughter needed to sign many documents which she didn’t fully understand.

In the past few weeks, he has made a sizeable withdrawal which my daughter became aware of after seeing a confirmation email from their bank.

She is worried about raising this issue in an already difficult relationship.

Is there anything she can do?

Answer

Your question is very concerning, and hints at a domestic violence situation involving a form of DV known as coercive control.

Legally, all members of an SMSF must be trustees, and she is as responsible for the legal operation of the fund as her partner.

There are very strict rules surrounding early access to super, and these inevitably require the prior approval of the Australian Taxation Office before making a withdrawal.

In her difficult circumstances, she should make contact with the domestic violence helpline on 1800 737 732, which is a 24/7 service.

Next, the ATO will be more than willing to help her. Anyone can make an anonymous tip-off to the ATO via its website or by calling 1800 060 062.

If this is a case of coercive control, the ATO could impose penalties on the perpetrator. But in this case, she would be best identifying herself to the ATO.

The ATO also has strict protocols to protect the anonymity of certain “whistleblowers”, and the list of people who qualify for this protection certainly includes dependants and spouses.

There is an inevitability that this withdrawal, if illegal, will be uncovered when compulsory audits and reports are conducted.

We wish your family well and hope your daughter is able to resolve her problems.

If you or someone you know is experiencing family violence, phone 1800 RESPECT (1800 737 732) or the Crisis Care Helpline on 1800 199 008.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association