The segregation strategies for SMSFs have their benefits but advisers and trustees must take on board that segregating assets solely for tax benefits was not the best approach.
“We’re all very familiar with the concept of pooled assets in a super fund, where all the members are all in one big pool and the members share those balances,” TAG Financial Services partner Brenda Hutchinson told delegates at the 2015 SMSF Association National Conference in Melbourne today.
“When we are segregating, we are putting specific assets to a specific member’s account – for example, you might have shares segregated to one member and then a property segregated to another.
“But what we need to understand is that we don’t segregate purely for tax purposes.”
Hutchinson said advisers and trustees had to carefully consider the motives for segregating those assets in the fund.
“I know we do a lot of things to minimise capital gains tax (CGT), to be refunded imputation credits and similar strategies, but you do need to be careful that in the fund you are not segregating, un-segregating then segregating year-on-year for a tax reason,” she said.
“You may get caught out under Part IVA of the Income Tax Assessment Act provisions and be seen as a scheme.”
There was no legislative requirement for SMSFs on use of a segregation strategy, Hutchinson said.
“It is a matter for the trustees to choose for themselves,” she said.
“But we need to think about segregating in the context of the investment strategy, the ages and the stage in life cycle of the members, the risk profiles of the members, and also in the context of cashing needs.”
Other valid reasons for segregating included second marriages and opportunities to take advantage of CGT during a particular scenario, she said.
