I have a self-managed super fund with my wife. The assets of the fund are approximately $2.1 million. My wife’s super account balance is about $420,000 and my pension balance is $1.68m. I am 64 and my wife is 61 and we continue to work. As I exceed the $1.6m transfer balance cap, what do I need to do before July 1, 2017?
With just under six weeks remaining before the new rules come into effect, there are a range of important steps that you as trustees of your SMSF will need to take.
As your pension balance is greater than $1.6m, you will be required to roll back to accumulation phase the excess above the $1.6m that is allocated to your account-based pension.
The ATO has stated that a trustee resolution, effective July 1, 2017, will be required highlighting the excess above the $1.6m cap will be moved to the accumulation phase. Once the 2017 tax return is completed, the roll back will come into effect.
You will also need to have a clear understanding of what is in accumulation and pension phase for you and your wife for both income and capital gains purposes.
Within your fund pension and superannuation accounts, you will be obliged to apportion income on the fund using the “proportionate method” to calculate and differentiate exempt pension income from income earned on funds in accumulation phase.
You need to consider and decide when and if you wish to apply the new capital gains tax relief provisions. Under the super changes, complying SMSFs are able to reset the cost base of investment assets to their current market value, where those assets are reallocated or reapportioned from the retirement phase to the accumulation phase prior to July 1, 2017, in order to comply with the transfer balance cap or new transition-to-retirement income stream arrangements.
Where the assets of your SMSF are partially supporting interests in the accumulation phase, tax will be calculated on this proportion of the capital gain that is not in pension phase on June 30, 2017. While the capital gain needs to be identified, any tax liability will be deferred until the asset is sold.
There are two methods of allocating assets in a member’s pension and superannuation accounts within an SMSF; segregation or proportionate method. Segregation means that a specific investment asset is allocated to supporting specific pensions and/or superannuation accounts. Proportionate method means that the asset is owned by the SMSF as a whole and the value is proportioned on a percentage basis between the pensions and/or superannuation accounts.
CGT relief on the assets of the fund applies differently and is subject to different rules depending on whether the super fund uses the segregation or proportionate method.
The relief conditions apply to both methods provided action is taken between November 9, 2016, and June 30, 2017. This applies to all assets in a complying SMSF held throughout that period. If a super fund wishes to apply the relief, they must make this choice and notify the ATO on or before the day the trustee is required to lodge the fund’s 2016-17 tax return. A choice to apply the relief cannot be revoked.
Seek advice from your accountant and your financial planner now. Ensure you comply with the changes and ensure you have all your valuations, reporting and documentation up to date.
20 May 2017