Understanding superannuation interests in an SMSF
Provides information about what is a superannuation interest in a self managed superannuation fund (SMSF) and how the value of the interest is determined.
This information applies to accumulation SMSFs that pay super income streams that are allocated, market linked or account-based pensions.
If you are entitled to be paid a benefit from your SMSF, then you have a superannuation interest in the SMSF.
Every amount, benefit or entitlement which you hold in your SMSF is to be treated as one interest. However, if a super income stream has begun to be paid from the SMSF, the amount that supports the income stream is treated as a separate interest.
Your accounts in different super funds, or different SMSFs, are treated as separate superannuation interests.
A superannuation interest is made up of two components a:
- tax-free component, and
- taxed component.
The proportioning rule is used to calculate the tax-free and the taxed component of a superannuation interest.
If you access your super benefit before you turn 60, your benefit will have a tax-free and taxable component. You can not split your tax-free and taxable components into different accounts in your SMSF.
When a super benefit is paid from a superannuation interest, the benefit will have both tax-free and taxable components calculated in the same proportion that these components make up the total value of the superannuation interest.
When you start an income stream benefit from your SMSF, a separate superannuation interest is created. The components of this separate interest will be in the same proportions as the components of the original interest prior to the commencement of the income stream.
The way of working out the value of a superannuation interest varies depending on the purpose of the valuation.
There are three reasons why it is necessary to value a superannuation interest to:
- calculate the pre-July 1983 component of the crystallised segments of a tax-free component as at 30 June 2007.
Generally, the value of the interest is the total amount of all super lump sums which could be paid to you at that time, assuming that you are eligible to retire.
- calculate the pre-July 1983 component of an interest supporting a super income stream at the time of a trigger event.
Because the income stream benefit is either allocated, market linked or account-based there is an identifiable lump sum available, such as an amount available in the your account, at the valuation date. This amount is to be used as the value of the interest.
A trigger event could be commutation, death, turning 60, or 1 July 2007 if you are already 60 or older.
- determine the value of your interest at the time a super benefit is to be paid (for the purposes of the proportioning rule).
The value of your interest (other than the interest which is supporting a pension that has already begun) is the total of the lump sums which could be paid from the interest.