Speaking to SMSF Adviser, SMSF Association head of technical Jordan George said the association believes SMSFs should be able to have the flexibility to be able to how to administer the tax treatment for assets in pension phase, whether it’s segregated or unsegregated
“We don’t think the legislation should impose on how they administer their tax outcomes for their pension income,” said Mr George.
In its submission to Treasury, the SMSF Association said main concern raised during by the consultation was that the requirement to transfer excess assets above $1.6 million into accumulation phase will increase the use of the segregated method and the transfer of assets between pools of assets to avoid tax.
Mr George said this is not evident from the current activities of trustees however.
“There have been numerous opportunities for trustees of SMSFs to “manage” the transfer of assets between accumulation and pension accounts for legitimate reasons to avoid tax for many years, but this has not occurred,” SMSFA said in their submission.
The potential application of the anti-avoidance provisions in Part IVA has effectively policed any unacceptable behaviour and will continue to do so.
The submission said the provisions are unnecessary and “create extra costs for no real reason in deterring the mischief indicated”.
“In addition, they contradict previous moves to reduce the use of specific anti-avoidance provisions and rely more broadly on the principles based general anti-avoidance provision in Part IVA.”
I am assuming that ATO will insist that properties held in a SMSF will have to be valued at 30Jun17 – by a Registered Valuer, rather than (the existing) market estimate from a Real Estate Agent. At $1,000+ per valuation, is this going to be a bonanza for Property Valuers or what ?
A major issue involving the $1.6 million cap that can be retained in the pension account is that it is impossible for SMSFs that own units in unit trusts and managed funds to calculate the value of the pension assets until after 30 June 2017 due to the distributions and unit values not being available until weeks after the end of the financial year.
Even SMSF members who only have interest earning capital and Australian listed securities do not know their account balance until after interest is credited at 30 June and after the ASX closes and after 4.10pm on 30 June 2017 AEST.
Obviously those making this segregation restriction do not understand the practical ramifications and added cost to super funds, particularly self managed super funds, of this proposal.
Most SMSF trustees already segregate assets where there are pension and accumulation components. The reason for this is that apportionment of income is only permitted where an actuarial certificate is obtained. In addition to the cost of the actuarial certificate this often means increased accounting/administration fees due to the added time in preparing information for the actuary and any subsequent (usually very minor) adjustments to accounts.
It will inevitably lead to some people establishing 2 separate SMSFs before 30 June 2017 – again retirement saving being sapped by added costs – to avoid this requirement.
Segregating the assets and accounting for them seperately generally involves a lot more work and expense than obtaining an actuarial certificate,