• SMSFs Super Changes Webinar- 28th February 2017

    This webinar provided an outline of the latest superannuation changes with a focus on the impacts for SMSFs. It provided information to support clients to comply with the transitional rules as well as the new law post 1 July 2017.

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    Your questions answered

    The following questions were commonly asked during the February 2017 SMSFs Super Changes webinar.

    Can trustees rely on a binding death benefit nomination to make a pension reversionary?

    The ATO view is that a binding death benefit nomination, by itself, would not suffice to make a death benefit income stream reversionary. For a reversionary pension to be in place the governing rules of the fund must expressly imply that the pension is reversionary upon a member’s death to the nominated beneficiary. If the governing rules of the fund do not state this then a binding death benefit nomination by itself does not make a pension reversionary.

    How do the super changes impact on foreign fund transfers to a SMSF?

    Foreign fund transfers is a very complex topic and unfortunately outside the scope of this webinar. However, it is important to recognise that the super changes that we have been discussing do not change the treatment of these transfers for excess contributions purposes. Therefore, amounts transferred from foreign super funds to an SMSF will generally count towards either or both of a member’s contribution caps, and care should be taken when advising your clients.

    What happens if my client is in receipt of an account based pension but her husband dies and his defined benefit income stream auto reverts to her as the spouse, creating an excess?

    If a member in receipt of an account based pension starts receiving a death benefit as a defined benefit income stream, and the combined value of the account based pension together with the special value of the death benefit income stream exceeds $1.6 million, the member should consider commuting an amount as a lump sum from their account based pension. If the member chose to commute the death benefit income stream instead, the amount would likely have to be ‘cashed’ out as a lump sum, as rolling over into another income stream would not alleviate the member’s TBC issues. If it was cashed out, the spouse would not be eligible to recontribute the amount super because of the new total super balance limitation.

    If both parents die, what is the sole surviving child’s temporary transfer balance cap?

    As discussed, there are special rules that apply for death benefits paid to children. Where the amount is paid as a lump sum death benefit to the child, there are no TBC implications. However, where the death benefit is paid to the child as a pension, then the child will receive an amount towards their child transfer balance cap from each of their parent. In essence the child will have a larger cap to accommodate both death benefits. For example, if both parents died and they each had $1.8m in accumulation benefits, then their child could receive a $1.6m pension from each parent. The remaining $400,000 would need to be taken as a lump sum death benefit.

    Where an SMSF that cannot use the segregated method to claim ECPI, can the trustees still segregate assets?

    The change which limits an SMSF from using the segregated method if a member has a total super balance of greater than $1.6m, only relates to the ability for that SMSF to segregate for tax purposes. So in these cases, even though the SMSF may be required to use the proportional approach to calculating its tax, the trustee can still decide which assets will support pension accounts. In essence, the returns on the segregated assets would continue to be allocated to the respective pension account(s) and the allocation of any tax would be done proportionately.

    If 100% of an SMSF’s assets are supporting account based pensions, how does the fund take advantage of CGT relief?

    In these situations, you need to keep in mind our view that SMSF’s in this situation are taken to be using the segregated method. When the members of the fund commute amounts to the accumulation phase, the fund will need to take action on or before 30 June to transfer pension assets across to support these accumulation interests. The fund can elect for CGT relief to apply to those assets. Alternatively, if the fund cannot transfer any specific assets across to meet these requirements they may choose to adopt the proportionate method, and elect for CGT relief to apply to some or all of their assets.

    Do I keep the CGT discount when I apply CGT relief?

    The way the CGT relief provisions work is that they create a hypothetical scenario where the fund has sold and immediately repurchased the asset. This creates a real CGT event and capital gain, and so it resets any entitlement to the 12-month CGT discount. You will need to hold the asset for a further 12 months after the relief applies to qualify for the 33% discount.

      Last modified: 07 Mar 2017QC 51420