Re: Segregation Of SMSF Assets Post July 1st 2017

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New Contributor
Posts: 2
Registered: ‎02-02-2017

Segregation Of SMSF Assets Post July 1st 2017

I currently have in excess of $1.6m in pension phase in my SMSF. In moving my excess over the $1.6m cap into an accumulation account prior to July 1st 2017, does the SMSF regulator allow one to choose the assets (shares and property) that remain in pension account and those that are transferred to accumulation account? In other words, the super fund assets remain completely segregated in a pension account and accumulation account post July 1.

SuperConcepts expert
Posts: 9
Registered: ‎14-03-2016

Re: Segregation Of SMSF Assets Post July 1st 2017

[ Edited ]

Thanks for your question.

 

 

I start my response with an assumption that your fund is currently using the segregated method to claim exempt current pension income (ECPI) - income which is exempt from fund 15% income tax due to it belonging to pension accounts. That is,either:

 

  • the fund has set aside specific assets or an identifiable pool of assets for the pension accounts and specific assets set aside or a identifiable pool of assets for accumulation accounts; or
  • your fund consists 100% of pension accounts and there are no members with any accumulation accounts.

 

If either of these is the case, then your fund would be using the segregated method to claim ECPI. The other method for claiming ECPI is the unsegregrated or pooled method and requires a certificate from an Actuary which advise of the percentage of elgible fund income that is exempt from 15% fund income tax.

 

The balance of my response will be from the perspective of the fund claiming ECPI.

 

When complying with the $1.6m transfer balance cap, a segregated fund has two options. Either:

 

  • the fund may continue to use the segregated method for the rest of 2016/17 and transfer assets between the two segregated asset pools to comply with the transfer balance cap ; or
  • the fund may cease to use the segregated method and adopt the proportionate method for the rest of 2016/17.

 

Which option is selected will determine, in part, which assets are available for CGT relief (this relief allows the fund to elect, for eligible assets, that their relevant cost base is reset to market value). Please refer to the following link on a discussion of the CGT relief rules for funds affected by the transfer balance cap or new TTR pension integrity measures:

 

http://www.superconcepts.com.au/news-insights/news/2017/02/06/cgt-relief-explained

 

Note that the above talks about the method the fund can use to claim ECPI for the rest of 2016/17. There is an important change to the availability of the segregated method to claim ECPI from 1 July 2017.

 

SMSFs will not be able to use the segregated method for to claim ECPI after 1 July 2017 if:

 

  • At any time during the income year, there is least one superannuation interest which is in the retirement phase - a pension account (this excludes TTR Pensions as they are not retirement phase pensions), and
  • At 30 June of the prior income year, a fund member has a ‘total superannuation balance’ (includes pension and accumulation accounts) that exceeds $1.6m; and
  • that member of the fund is in receipt of a current superannuation income stream (excluding TTR pension).

So, for the circumstances that you described, as the SMSF has a member, you, with a total super balance of more than $1.6m and that member has a pension account, the SMSF will not be able to use the segregated method to claim ECPI for the 2017/18 and following income years. It will only be able to use the proportionate method to claim ECPI.

 

From an Investment Strategy perspective, a fund will be able to set aside specific assets for pension accounts and specific assets for accumulation accounts, after 30 Juen n2017. However, when it comes to claiming ECPI, an SMSF affected by this restriction on using the segregated method for claiming ECPI will have to use the proportionate method. This could complicate the administration of the fund, that is, where the method used to claim ECPI is the unsegregated method, but the fund has a segregated Investment Strategy.

 

Hope this answers your question.

 

Contributor
Posts: 65
Registered: ‎10-11-2015

Re: Segregation Of SMSF Assets Post July 1st 2017

This is a real pain... not only has the government made changes which are in essence retrospective, but it has created more administrative complexity. DADs Army would be proud of that!

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Contributor
Posts: 46
Registered: ‎03-12-2015

Re: Segregation Of SMSF Assets Post July 1st 2017

Good professional attempt to explain the changes Mark but when I sit in front of trustees their eyes glaze over with the terminology and complexity. That has to be the sign of bad legislation! I have resorted to flow charts to try adn let them understand the options. Going to be a very difficult 4 months ahead.

Putting people back in control of their finances
Frequent Visitor
Posts: 1
Registered: ‎16-01-2017

Re: Segregation Of SMSF Assets Post July 1st 2017

I have had my Super Advisior work on this matter for the last 2 weeks. He advises me that the ATO is yet to finalise all the guidelines. This is bad legislation which lacks clarity.

New Contributor
Posts: 4
Registered: ‎18-09-2016

Re: Segregation Of SMSF Assets Post July 1st 2017

Is it possible to roll over to an additional smsf, one to house pension asset and another for accumulation asset? If possible what would the mechanics be? After 30th June or before?


rondotcom wrote:

I currently have in excess of $1.6m in pension phase in my SMSF. In moving my excess over the $1.6m cap into an accumulation account prior to July 1st 2017, does the SMSF regulator allow one to choose the assets (shares and property) that remain in pension account and those that are transferred to accumulation account? In other words, the super fund assets remain completely segregated in a pension account and accumulation account post July 1.


 

JJB
New Contributor
Posts: 2
Registered: ‎13-02-2017

Re: Segregation Of SMSF Assets Post July 1st 2017

Bernchin I think what you suggest is excellent and have previously toyed with the idea myself. Clearly once you exceed the $1.6m limit all these complexities outlined by Mark arise. For somebody like me that has managed my own SMSF for the last 12 years (and now entirely in the pension phase). these changes will definately drive me to relying on others at great cost to manage my fund. Therefore it seems to me that establishing a second SMSF to enably you to rollover all assets in excess of the $1.6m and that will become an accumalation fund will simplify the situation significantly. You can then decide what assets to rollover to maximum benefit. I would be very interested in any responses to your question

New Contributor
Posts: 4
Registered: ‎18-09-2016

Re: Segregation Of SMSF Assets Post July 1st 2017

The beauty of having two Smsf is that your pension fund can grow beyond 1.6 if you are a good investor under the one Smsf your pension fund will always be 1.6 under proportional rules. 


JJB wrote:

Bernchin I think what you suggest is excellent and have previously toyed with the idea myself. Clearly once you exceed the $1.6m limit all these complexities outlined by Mark arise. For somebody like me that has managed my own SMSF for the last 12 years (and now entirely in the pension phase). these changes will definately drive me to relying on others at great cost to manage my fund. Therefore it seems to me that establishing a second SMSF to enably you to rollover all assets in excess of the $1.6m and that will become an accumalation fund will simplify the situation significantly. You can then decide what assets to rollover to maximum benefit. I would be very interested in any responses to your question


 

Contributor
Posts: 46
Registered: ‎03-12-2015

Re: Segregation Of SMSF Assets Post July 1st 2017

[ Edited ]

I would argue that the pension account when using one SMSF will not be limited to $1.6m after July 2017 as it will grow with the proportion of earnings apportioned to the pension segment each year. There are certainly benefits of running 2 SMSFs but having a single one does not limit the growth of the pension balance.

 

Perhaps the commodity admin ( @rosie or @olympia) can have a Tech guru check for us as it is important to have the right information on here.

 

Cheers

 

 

Putting people back in control of their finances
New Contributor
Posts: 2
Registered: ‎02-02-2017

Re: Segregation Of SMSF Assets Post July 1st 2017

I too have been testing the idea of rolling my excess funds from my current pension holdings to a second SMSF which will remain in accumulation and as yet I cannot decide on the feasibility of doing so. The most troubling questions yet to be answered include:

 

* Will the added administrative costs negate any of the advantages of segregation achieved with the double fund strategy.

* Will the second fund need to have a unique name and separate unique bank accounts.

* While this setup becomes a roundabout method of achieving segregation of pension accounts from accumulation accounts and allows us to keep lower earning assets in accumulation effectively reducing the fund's overall tax liability post July 1  2017, the SMSF regulator, being the ATO may view this as some sort of tax minimisation (avoidance) scheme and disallow the strategy.

 

Member’s views on the above will be appreciated

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