In a live Q&A webinar, Accurium technical services manager Melanie Dunn said that one of the common questions she receives is if a fund will still be segregated for the whole year where the fund is 100 per cent in pension mode and receives a contribution that is immediately put into the retirement phase.
The first thing that needs to be confirmed, explained Ms Dunn, is that the fund is solely in retirement phase over an entire income year so that it is 100 per cent exempt from an exempt current pension income perspective.
“Where you have received a contribution and that contribution comes in, it does come into the fund as an accumulation interest,” said Ms Dunn.
“However, if that is immediately put into pension mode so that the fund remains entirely in the retirement phase for the income year, whether that contribution impacts the ability to claim ECPI using the segregated method, the ATO has said is a matter of documentation.”
Ms Dunn said the trustee needs to show that there was no time for any income to be earned in the accumulation phase.
This could be in the form of a minute, she said, which states that the contribution has come in and was immediately converted to a retirement phase income stream.
“That would be sufficient to identify that there was no time for any income to be earned in the accumulation phase and the fund can continue to use the segregated method in this instance or continue to claim the fund as 100 per cent exempt for the income year,” she explained.
If you dig a bit deeper – then you can not say that the entire contribution was simply put in pension phase at the same moment it was received. I refer to concessional contribution where 85% is credited to the member to commence a pension and 15% is kept to pay the tax – either on quarterly bassis or on annual baisis. That 15% will always remain in accumulation phase – waiting to be paid out to the Tax Office and when it is in the fund – may earn income.
As high level advisers understand that the maximum amount of concessional contribution which you can make is $357,500 – 15% can be a substantial amount which could be invested in a high yeilding income or capital gain earning asset, such as crypto.
The only solution to this problem is either to have two SMSF – one for pension assets or simply contribute to a public offer fund.