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Compliance & Regulation

Pension rollbacks require careful timing

SMSFs with multiple pensions must use extra caution when it comes to which pension to roll back and the order under the proposed $1.6 million transfer balance cap requirements.

“We have a few issues there,” Heffron SMSF Solutions technical services manager Leigh Mansell said.

“If you think about this example of two members in the one fund with $2 million each, not only will you be thinking about which pension you’ll roll back, but you’d need to be really careful about the order you do things in.

“So if you decided to keep $1.6 million of the tax-free pension in play and look to roll back in full the $2 million worth of taxable pension or in addition to the $400,000 from a tax-free pension, you might want to be careful how you do things.”

In addition, Mansell said trustees needed to be wary of rolling back into accumulation phase for SMSFs where tax-free money merged with taxable money at the same time.

“You’re not going to be able to dissect things going forward, so you need to be careful with the planning, the estate planning or whatever reason you are keeping your tax-free separate from your taxable, watch out for your timing,” she noted.

“You might need to do this as a two-step process in the lead-up to 30 June 2017 – do a partial rollback of the tax-free first and maybe shift that to another fund.

“Or maybe you want to roll back the $2 million in a taxable pension first and then shift that to another fund, then after that’s cleared into accumulation, roll back the $400,000 of tax-free back to accumulation.

“It’s going to take some care and thought and time leading up to 30 June 2017 to make these things happen, if you’re trying to get it done and you don’t want to leave things to 30 June 2017, particularly if you’re moving to another fund.”

She also recommended that SMSFs extend their questioning when following up information with the ATO. “The way I’ve always approached it is to actually ask the ATO how much has been counted towards a particular cap and I also ask the concessional contributions (CC), in addition to non-concessional contributions (NCC),” she said.

“The logic behind that is if you’ve had someone who’s had excess CCs, it also dominoes over and counts towards the NCCs, so you need to be quite clear in the questions that you’re asking them.

“We also want to ask things like, if the client has exceeded their CC cap, have they refunded their excess? Same with excess NCCs. You need to go the extra step and extend your questioning, so I always ask in terms of what has counted against the caps and keep a detailed file note.”

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