The concept of disregarded segregated small fund assets is a new concept that came in through the back door of the super reform. Don’t be surprised if you had never heard of this one before. We were in the same boat until not long ago.
Disregarded Small Fund Assets
A fund has disregarded small fund assets in the following financial year when any member is in retirement phase and has a total superannuation balance (TSB) that exceeds $1.6m at 30 June. Here is what we learned from our talk with Melanie Dunn of Accurium.
To listen while you drive, walk or work, just access the episode through a podcast app on your mobile phone.
Timing
You assess each year anew on 30 June whether the member’s TSB exceeds $1.6m. This includes all your clients’ superannuation balances, SMSF, retail and industry funds as well as defined benefit interests. If the member’s TSB exceeds $1.6m, the fund will have disregarded small fund assets for the following financial year.
The concept applies from 1 July 2017 onwards so is already relevant for the 2018 SMSF annual returns.
Consequences
Having disregarded small fund assets means three things. With disregarded small fund assets, the fund…
#1 Can not use the segregated method for ECPI, neither elected nor deemed segregation, when solely in retirement phase. The fund must use the unsegregated method over the entire year to claim ECPI. But the fund can still segregate for investment purposes.
# 2 Will disregard capital gains and losses under Section 118-12 ITAA97 when solely in retirement phase. Whereas without disregarded small assets it would disregard these under s118-320 ITAA97 when solely in retirement phase.
# 3 Will need an actuarial certificate even when solely in retirement phase.
Whether the tax outcome is better or worse with or without disregarded small fund assets, depends on the timing of income. But either way the trustee has no choice. If the fund has disregarded small fund assets, the fund must use the unsegregated method over the entire year to claim ECPI.
Question
When you order an actuarial certificate, the actuary will ask you the following question, “Can you use the segregated method for this Fund in this financial year?” The question is not whether the fund did use segregation. It is asking whether the fund is eligible to use segregation.
So if the fund has disregarded small fund assets, answer this question with No.
These are just some of our notes. You will find the actual interview with Melanie Dunn at the start of this page. Melanie explains all this much better than we ever could.
MORE
Personal Insurance Inside or Outside of Super
Disclaimer: Tax Talks does not provide financial or tax advice. This applies to these show notes as well as the actual podcast interview. All information on Tax Talks is provided for entertainment purposes only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.