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ATO taking a stronger view on segregated pension assets

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New to the forum and just trying to find the right place to canvas thoughts without requesting official financial advice, so first post. Just wondering if anyone has a view on how the ATO might shares that don't pay a dividend being put in a segregated pension asset pool given their new focus on segregated assets sold for capital gain.
If segregating assets do you think it is best to only put dividend/income paying assets or is there an argument for longheld assets that have a possible capital gain?
 

tinhat

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Can you point me to anywhere the ATO says that funds in a pension account must or should be invested in income generating assets?
 
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sorry, I obviously wasn't clear enough.

Recent advice from ATO relates to what seems to be a more strict definition of the use of assets in a pension:
“If an asset is purported to be segregated [put into a pension] shortly before disposal, and then disposed of in *circumstances where a capital gain is . . . exempt income, it will be a question of fact having regard to all the *circumstances as to whether it was invested . . . for the sole purpose of enabling the fund to [provide] superannuation income stream benefits and to whether the anti-avoidance provisions would apply,” the Tax Office said in a document published last week."

So you are asking a similar question. Do you think segregating shares for the pension that are not paying a dividend would be frowned upon?
 

Julia

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Recent advice from ATO relates to what seems to be a more strict definition of the use of assets in a pension:
“If an asset is purported to be segregated [put into a pension] shortly before disposal, and then disposed of in *circumstances where a capital gain is . . . exempt income, it will be a question of fact having regard to all the *circumstances as to whether it was invested . . . for the sole purpose of enabling the fund to [provide] superannuation income stream benefits and to whether the anti-avoidance provisions would apply,” the Tax Office said in a document published last week."
seanc, I think perhaps you're misinterpreting the ATO's statement. My reading of it is not that it relates at all to the paying of a dividend. Rather to timing.

As you would know, in the accumulation phase tax is applied at 15%. So if, say, you had a $50,000 capital gain on a company which you'd held for some while, and then you moved your Fund into pension phase, and then very soon after that you sold those shares, the ATO could reasonably suspect that you were avoiding tax, this not being payable in pension phase.

Others may have a different interpretation. The ATO is very helpful if you give them a call and ask for clarification.
 
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seanc, I think perhaps you're misinterpreting the ATO's statement. My reading of it is not that it relates at all to the paying of a dividend. Rather to timing.

As you would know, in the accumulation phase tax is applied at 15%. So if, say, you had a $50,000 capital gain on a company which you'd held for some while, and then you moved your Fund into pension phase, and then very soon after that you sold those shares, the ATO could reasonably suspect that you were avoiding tax, this not being payable in pension phase.

Others may have a different interpretation. The ATO is very helpful if you give them a call and ask for clarification.
From what I've read you seem to be on the mark Julia.

The issue I have with the ATO is they have not defined what would be considered a reasonable period between setting up the pension phase of the fund and disposing of assets that generates a sizable capital gains liability.

As the agequake rumbles through Government finances I think tax free super pensions will have to go, otherwise we'll be in a situation where something like 20% of the population pays little to no tax on their incomes. Its hard enough with around 5.4 workers per dependent, but by mid century we'll be down to around 2.7.
 
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Thanks for your thoughts. Yes, I guess you hit the nail on the head, I think the timing of a sales of assets is the issue if they have an unrealised capital gain. It is also a little unclear as to whether keeping the gain in the pension alleviates a concern but I am guessing the tax issue is the of most concern and that obviously relates to the sale.
 
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From reading this thread I'm not sure everyone has clarity on what segregated pensions are. So let me clarify (with some simplifications)...

If one member of a fund is in pension phase (0% tax, typically over age 60) and another member is in the accumulation phase (15% tax on income, 10% on capital gains where the asset is help for more than 1 year, typically under age 60), the trustees need to determine how much tax is payable. They have 2 choices:
1. Segregated assets - every asset is allocated to a specific member, and the tax on that asset's income is based on that member's tax rate. OR
2. Unsegregated assets - an actuary is required to calculate the tax percentage across the entire fund.

Most funds go down the unsegregated approach because it is simpler. There is a cost of around $200 per year to obtain an actuarial certificate.

Some funds segregate their assets - possibly because the different members have different investment objectives, and in some cases to reduce tax. For example, they might allocate an asset with low income such as property to the member in the accumulation phase, and allocate an investment with high income such as bank shares to the member in pension phase. And then when it is time to sell the property they change the allocation, so it can be sold without paying any CGT.

The ATO is trying to put an end to this practice. The draft statement has other requirements of segregated assets too. For example, any expenses of the fund need to be shared between the segregated bank accounts (ie the 2 bank accounts belonging to the member in accumulation and pension phases) shortly after payment is made. This all gets quite hard. As a result we will see even less people with segregated assets.

As a general rule, I would suggest going down the unsegregated path unless you have a good reason to do otherwise. As with many aspects of SMSF's it is wise to seek advice, it will save you thousands of dollars to get these things right.
 
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From reading this thread I'm not sure everyone has clarity on what segregated pensions are. So let me clarify (with some simplifications)...

If one member of a fund is in pension phase (0% tax, typically over age 60) and another member is in the accumulation phase (15% tax on income, 10% on capital gains where the asset is help for more than 1 year, typically under age 60), the trustees need to determine how much tax is payable. They have 2 choices:
1. Segregated assets - every asset is allocated to a specific member, and the tax on that asset's income is based on that member's tax rate. OR
2. Unsegregated assets - an actuary is required to calculate the tax percentage across the entire fund.
I didn't realise you could claim asset A is owned by Member B to then claim it is now owned by Member A.

If that's the case then yeah I can see how the ATO is going to view the moving of the Asset from a taxable member to a non taxable member as tax evasion and probably rightly so.

I'd dare say that if an asset has been segregated to Member A for the last 10 years and sold with a large capital gain that you would be on fairly safe grounds as opposed to the asset being segregated to member B for the last 9 years - or never been segregated before - and "transferred" to Member A a year before asset disposal.

I'd dare say if the reason you've done the asset move is about tax then be worried.
 

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