(1) What happened?

When tax statements were uploaded to Class Super in early October 2023, we identified that the "Gross Up Capital Gain - Discounted Method" values were incorrectly appearing as zero for certain self-managed superannuation funds (funds) where tax statement information is received/delivered via the HUB24 data feed. This led to the underreporting of discounted capital gains and the associated tax liabilities for these funds. 

On 2nd November 2023, we corrected the capital gains information error in Class Super and subsequently reprocessed all affected HUB24 tax statements on 22nd and 23rdof November 2023 to correct the capital gains wherever possible.

(2) What is the impact to my clients and what action do I need to take?

Unfortunately, not every fund was able to benefit from this automatic correction due to reasons such as already submitted returns, financial year closure, or completed period updates and tax finalisations. We have supplied a list of impacted funds within your business in out written communication to your business. We recommend using your professional judgment to determine the appropriate course of action for each.

To rectify for the fund/s listed above, we suggest three options, Method 1 being our recommended course of action: 

1. Method 1: Add the total discounted capital gain back against the security code with the largest missing value. This method ensures that the total distributed capital gain is correctly accounted for and taxed. (Recommended)
2. Method 2: Create a custom holding account and record a tax-only entry for the missing gross up discounted capital gain amount. 
3. Method 3: Manually adjust the Gross Up Capital Gain Discounted Method amount for each affected tax statement event, based on a provided spreadsheet.

Refer to this detailed Knowledge Base article with step-by-step instructions to help you navigate this process.

(3) How does Class calculate the missed capital gain and estimated tax implications?

The missing value for the Gross Up Capital Gain – Discounted Method is calculated by adding the Discounted Capital Gain Domestic and the Discounted Capital Gain Foreign, then multiplying the sum by 2. The estimated tax implication is calculated as (Gross Up Capital Gain – Discounted Method) x (2/3) x 15%, which equals 10% of the missing discounted gain. 

This is the most conservative estimation. If the fund is wholly or partially in the pension phase, then the actual tax payable will be significantly lower due to the actuarial exemption percentage and the calculation of Exempt Current Pension Income. 

(4) Why has Class informed me about missing capital gains even if it is only a few dollars? 

We understand access to reliable data critical for servicing your clients. We have compiled a comprehensive breakdown of the missing discounted capital gains information, both aggregated at the fund level and detailed individually for each tax statement event. This information is available in the communication sent regarding this capital gains information error. 

This information enables you to make an informed decision, and using your professional discretion, make any adjustments to funds where the discounted capital gains and associated tax liabilities have been materially understated. 

(5) Do I need to amend SMSF Annual Returns that have already been lodged? 

The decision to amend the SMSF Annual Return should be evaluated on an individual basis. As a general guideline, an amendment is warranted whenever the tax implications are substantial enough to be considered material. 

(6) Will my client’s fund incur a lodgement penalty if an amendment is completed?

We believe that it is unlikely that your client’s fund will incur a lodgement penalty if the amendment is made. As the amendment is likely to result in additional tax being paid to the ATO under the principle of voluntary disclosure, and it stems from a genuine mistake and is lodged before the common due date for SMSFs, i.e. May 15, 2024, this would typically not attract a penalty from the ATO.