Not realising that a CGT or stamp duty event may be triggered

The Capital Gains Tax (CGT) and stamp duty systems can be complicated and it is not uncommon for SOAs to miss one or more CGT or duty implication in their advice. As well as the fact that each state has its own stamp duty system, the Income Tax Assessment Act 1997 (Cth) lists more than 50 separate CGT events. It is easy to miss something if care is not taken.

One common way for this to happen is where real property and/or shares/units in a managed fund are recommended to be transferred from one legal person to another. In most cases, any change of ownership constitutes a disposal on the part of the person giving up ownership.

But, there are exceptions. A common one is where property is being transferred in response to a marital separation, which can in many cases negate the usual CGT implications.

The CGT and stamp duty implications are particularly important where an adviser is recommending that investments be moved from one holding to another. For example, we sometimes see advisers recommending that investment properties be liquidated and the proceeds invested into some form of financial product. Leaving aside whether this is actually a good move, it needs to be remembered that a recommendation such as this has to address the client’s best interest criterion. This includes ensuring that the benefits given up when the initial investment is disposed of are fully quantified and compared to the benefits of the product being recommended. Tax liabilities can come into play here.

The catch-all nature of the client’s best interest criterion must always be borne in mind. While much of the commentary about product switching appears to be limited to switching from one type of financial product to another (for example, ASIC RG 84 – ‘Super Switching Advice’), the best interest assessment would naturally extend to the taxation implications of all recommended steps.

All advisers needs a good understanding of the tax implications of financial management. This does not mean that you need to be an expert tax adviser, but you do need to have a good awareness that any movement of capital raises the prospect of a CGT event.

Please also remember that Dover Financial Advisers is a registered tax agent. Head office has several lawyers available for you to talk to whenever an issue such as CGT arises.

The Dover Group