BT sheds light on confusion with asset segregation
Asset segregation within SMSFs remains one of the biggest areas of confusion from the super reforms, with many practitioners still unsure of when separate asset allocation for members can be used.
Speaking at the SMSF Summit, BT head of financial literacy and advocacy, Bryan Ashenden said the super reforms made it clear that where a member has more than $1.6 million and they’re running a pension, the SMSF cannot segregate for tax purposes.
Members in an SMSF therefore need to be very careful about who they’re joining a fund with, he explained, as one member might think they’re able to segregate because they’re well below the $1.6 million, but another member causes the fund not to be able to segregate.
“What you have to remember though is that whole piece is only about segregation for tax purposes. It is only about working out how much income tax has to be paid by the fund. It is completely irrelevant to the question of whether we can we still have separate asset allocation choice for members,” he said.
“It is also different to the question of whether the fund can segregate particular assets to a pension account versus an accumulation account for one member, because the answer to that is that you still can.”
An SMSF, he explained, can still distinguish the assets that support the pension but the member needs to make sure that all the returns on those assets go to the pension account and all the pension payments need to come out of those assets.
“You can't put it there and say ‘well I want all the growth and returns to go there, but I'll just take pension payments from somewhere else’. You need to make sure the money goes with whichever approach that you take,” he said.
“So, you can still do it, but it can be more complicated, and it will be more complicated if you happen to be in a scenario where you cannot use asset segregation for tax calculation purposes, because for accounting and returns you’ll go one way, and for tax you’ve got to deal with it differently. So, it can add more complication, but it's still possible.”