Staying segregated may become a headache

SMSFs not subject to the disregarded small fund assets rule should consider maintaining a small accumulation balance at all times to reduce their administrative burden, according to DBA Lawyers.

“If we always maintain a small accumulation balance, then of course we’re not locked into the ATO’s approach of forcing segregation because we’re not 100 per cent in pension phase,” DBA Lawyers senior associate William Fettes told the law firm’s recent strategy seminar in Sydney.

“That’s going to reduce complexity and we’re not going to get those multiple ECPI (exempt current pension income) periods.

“We just get to the end of the year and do one actuarial certificate for the whole financial year. So it does simplify matters significantly from an ECPI perspective.”

Fettes added SMSFs should also consider the practice of maintaining a small accumulation account balance when the switch to the segregated method to determine ECPI does not align with a financial year.

He also suggested SMSFs had the option of not claiming exempt income for a particular period, especially where there is little or no income for that period.

“[You have to decide if] the cost of obtaining an actuarial certificate outweighs the tax saving of exempting part of that period’s income,” he said.

“There’s no general regulatory obligation to get an actuarial certificate, so you just need to weigh it up in relation to the income for that particular period.”

However, he warned while it might benefit certain SMSFs to remain segregated for particular events, such as capital gains tax events, the strategy might increase complexity for others.

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