Super changes / SMSF and Segregation of Assets

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Super changes / SMSF and Segregation of Assets

Q. We have a Self-Managed Super Fund. Will the introduction of the $1.6 million transfer balance pension cap prevent us from having separate asset pools that are specific to each pension? What should we be considering and what do we need to do?

A:  The Government’s superannuation changes will prevent Self-Managed Superannuation Funds (SMSF) from segregating assets for taxation purposes when members commence pensions. This change came into effect as of 9 November 2016 and Trustees have until 30 June 2017 to take action to ensure advantage of the transitional Capital Gains Tax relief.

SMSF’s will need to take into account the introduction of the $1.6 million transfer balance pension cap (TBP cap) and Transition to Retirement changes when undertaking the restructure.

What is the segregated asset method? The segregated asset method allows assets owned by a SMSF to be assigned to a specific pension account with nil tax applying to any income from the assets or capital gain generated on the sale of the asset(s). Let’s be clear, the loss of the segregated asset method for pension accounts is a taxation issue. 

In practical terms, a SMSF can still cater for different investment strategies for its members. The changes do not preclude specific assets to be allocated to discrete investment portfolios to cater for a member’s investment strategy and/or liquidity needs to pay pension payments. Trustees will need to take this into consideration when seeking advice in the future and ensure the administration system supporting the fund can continue to cater for this.

The $1.6 million transfer balance pension cap (TBP cap) might be your driving force behind the restructure (refer to a recent Blog article for more details – click here), however the abolition of the segregated asset method for pensions for taxation purposes may present a challenge across different member accounts that have different investment strategies and liquidity requirements to fund ongoing pension payments.

It is important to note that the change in the segregated asset method for pensions does not apply to retail superannuation funds. As a consequence, the Government has targeted SMSF’s to avoid the taxation benefit provided by the segregated asset method for pensions for tax planning purposes.

For SMSF’s that have not employed the segregated asset method for pensions, it will not be available unless the fund was segregated as of 9 November 2016[1]. Trustees should be aware that transitional capital gains tax relief can be applied. The relief allows SMSFs to elect to reset an asset’s cost base to market value when completing a restructure due to $1.6 million TBP cap and Transition to Retirement changes (refer to a recent Blog article for more details – click here).

The capital gains tax relief applies to both the segregated and unsegregated asset method for pensions, however, Trustees should be aware of unintended consequences that could exist for unsegregated funds who have members in the accumulation phase.   Trustees should seek taxation and financial advice before undertaking a restructure before 30 June 2017 due to the complexity involved.

So what is next?

The complexity involved with the superannuation changes coming into effect from 1 July 2017 will require SMSF Trustees to seek advice. The raft of changes means that you might have to address multiple areas and determine how they are best dealt with will depend on your situation.

SMSF specialist advisers and accountants will be kept busy over the next 12 months, so don’t delay seeking advice. You don’t want to run out of time, to make important decisions and possible changes.

Article written by Damian Hearn, WealthPartners Specialist Adviser


[1] The 9 November 2016 is the date the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (Cth) was introduced into Parliament. This bill received royal assent on 29 November 2016 and is now known as the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 (Cth).

By | 2017-02-10T15:36:27+00:00 February 10th, 2017|Blog, Media Articles, SMSF|0 Comments

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