Melanie Dunn, senior actuary for Accurium, said when considering which strategies to implement to maximise tax outcomes, members need to be aware of two crucial aspects in the timing of restructuring investments.
“Let’s assume that we need to make some changes to investments in an SMSF if it has members who may be caught by the proposed $3 million super tax cap and want to restructure to take money out of the fund to avoid this,” Dunn said.
“If you’ve got $500,000 or $10 million the strategies will be the same to maximise ECPI when restructuring investments on the approach to retirement and you’re realising capital gains or losses in the fund.”
She said members who are primarily in the retirement phase, who have met a condition of release, need to consider the timing of changes to their investment restructure if they wish to avoid the $3 million cap.
She continued that if members want to take money out, whether through an in-specie transfer or by selling assets, they might be realising material capital gains or losses, and to maximise ECPI on those gains they need to understand how the fund is claiming ECPI.
“We need to think about the type of fund that’s in this situation, and by definition, they’re high net worth. They’ve got $3 million in total super balance, and they’re likely to then fall within the disregarded small fund asset provisions,” she said.
“This means they have to use the proportionate method to claim ECPI.”
She said although this means the timing of the capital gain in the fund has no impact on the strategy in terms of maximising ECPI, it does have an impact on the timing of the withdrawal from the fund.
“The other way is if the funds didn’t have disregarded small fund assets, then it’s kind of the opposite. They’d be eligible to use the segregated method,” she said.
This is advantageous because gains are tax-free if segregated pension assets are sold.
“And in this type of fund, the timing of when the capital gains tax event occurs in the year does matter. It needs to be in a period where the fund has those segregated pension assets,” she said.
“With disregarded small fund assets, or funds that are using the proportionate method to claim an ECPI, where realising capital gains or losses when they happen doesn’t matter. These are the things we need to think about to maximise ECPI. It’s all about the events that happen in the year, and we want to maximise the average value of retirement phase assets versus the average value of all of the assets in the fund to minimise those accumulation assets.”
