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Asset mix key for transfer balance cap

Knowing which assets to leave or switch back to the accumulation side of an SMSF is crucial for the optimal tax effectiveness of the fund in light of the proposed $1.6 million transfer cap, an SMSF expert has said.

“If you’re going to have to roll back assets at some point in time between now and 30 June 2017 to comply with the $1.6 million transfer balance cap, you’re going to have to calculate the costs on your super fund,” NowInfinity principal Grant Abbott told delegates at the SMSF Strategies Day 2016 in Adelaide.

“So if you’re going to have to put some money back into your accumulation account, what assets are you going to pick?

“The decision is an easy one. You should transfer all of the investments performing poorly back to the accumulation account and keep all of the best-performing ones on the pension side.”

Abbott said the conclusion should be driven purely by the desire to minimise the tax liability of the SMSF.

“Capital losses mean nothing in pension phase, but capital losses can be valuable in accumulation phase,” he noted.

“So if you’ve got an asset in your accumulation account that has risen in value, and you want to sell it to realise the gain, you should transfer it over to the pension side of the fund.

“Because if I have an asset with a capital gain and I move it over to the pension side of the SMSF and sell it, how much tax do I pay? Nothing.”

Similarly, transferring an asset that had generated a capital loss back to the accumulation side of the fund would be advantageous as the loss could be used to offset other tax liabilities incurred by other accumulation-phase assets in the SMSF, he concluded.

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