Recontribution strategies implemented in order to combat the economic struggles experienced during the coronavirus pandemic could have tax implications for SMSFs running multiple pension accounts.
Speaking during the SMSF Association National Annual Conference 2022 in Adelaide last week, Macquarie Bank division director David Barrett said there are both positives and negatives in relation to SMSFs having separate pension accounts.
“The purpose of a recontribution strategy is that you are trying to decrease the taxable component within a fund and really enhance [the tax benefit available] because the taxable component within a fund is the basis on which a death benefit tax can be levied,” Barrett said.
“There is some real benefit in running a second pension account, but that adds more complexity to the client’s affairs especially in terms of self-managed super funds having multiple pension accounts to consider separately for tax [considerations].”
While SMSF trustees may not immediately identify this risk, he said the reduced tax payable should be monitored because once the taxable component has been removed, the recontribution strategy would ultimately be unnecessary.
In addition, he noted financial advisers should identify which clients’ accounts have the highest taxable component and make withdrawals out of those accounts to maximise contribution benefits.
“We need to look at the clients and their spouse in the process and think about the transfer balance cap management issues also,” he said.
“We need to be creating space to avoid using up one person’s transfer balance account capacity because of potentially forthcoming reversionary pensions or death benefit pensions that will give a good transfer balance cap when one of the spouses passes away.
“So that is all something to consider in terms of a recontribution strategy.”
