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Self-managed superannuation funds have been put on notice that realising capital gains by selling assets soon after setting up a pension could be regarded as tax avoidance. Under rules introduced by former treasurer Peter Costello, savers over the age of 60 who establish a pension are exempt from paying capital gains or earnings tax on their investments.

The Australian Taxation Office reiterated a warning that it takes a dim view of superannuants who sell assets “shortly” after moving their super into the pension phase, and so pay no capital gains tax. It does not define “shortly”. The vigilance is part of a general crackdown on the $500 billion self-managed sector by the Tax Office.

The ATO noted that the sole purpose of operating a super fund was to provide income in retirement. “If an asset is purported to be segregated [put into a pension] shortly before disposal, and then disposed of in circumstances where a capital gain is . . . exempt income, it will be a question of fact having regard to all the circumstances as to whether it was invested . . . for the sole purpose of enabling the fund to [provide] superannuation income stream benefits and to whether the anti-avoidance provisions would apply,” the Tax Office said in a document published last week. “If a transaction is done shortly after moving into the pension phase, it is likely to attract the attention of the ATO, particularly when a large capital gain is realised,” said Peter Burgess, head of policy and technical advice at wealth manager AMP. “You need to be able to show it is a genuine situation and you are not moving into the pension phase to avoid capital gains tax.”