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Segregated or unsegregated assets – the conundrum and opportunity for SMSFs

The recent budget changes introducing the pension transfer balance cap and associated transitional capitals gains relief, for assets in SMSF member accounts moving back to accumulation phase, has opened up a Pandora’s Box for accountants and auditors.

A box with interesting opportunity in amongst the technical confusion.

In essence, with the maximum transfer limit of $1.6M into pension phase, it is now well worth reconsidering segregating assets into accumulation and pension phases.

This becomes relevant where there are different investment strategies or significant age gaps. For families this is particularly pertinent where children will typically be chasing growth strategies and parents are after yields and low risk.

The new transitional capital gains rules mean that segregated pension assets moving back to accumulation can potentially be quarantined from CGT on any unrealised capital gains prior to 30 June 2017, and only pay CGT on gains that accrue from 1 July 2017.

Unsegregated pension assets moving back to accumulation phase have more complex CGT calculations – requiring calculations of nominal taxable gains prior to 1 July 2017 along with decisions on whether or not to elect to defer the gain for up to 10 years. Record keeping will become a nightmare.

This affords a significant opportunity to reassess the asset strategy, as it is highly likely that the different taxation treatments will outweigh the increased costs.

This is a complex matter – and as always if you have any questions about segregated or unsegregated assets please do feel free to call me on 02 4961 2788.

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