Timing is crucial for any SMSF using the segregated asset method to maximise their capital losses for tax purposes, and the potential rewards of such a strategy could easily be outweighed by the potential risks, depending on when the segregation occurred, a technical expert has said.
“If you have capital losses that are attributed to the fund before you move into a 100 per cent segregated environment, then those capital losses will carry through that entire period of when the fund is in a segregated environment. [This] means that if other members join the fund at a later point in time, you’ll have those capital losses available to you,” SuperGuardian education manager Tim Miller said today during a technical webinar he hosted.
“On the negative side of things, any capital losses that are received whilst the fund is segregated and whilst the assets are segregated are effectively ignored. [The pro is] that capital gains are ignored when segregated, the con is that capital losses are also ignored, so you don’t have that capacity to carry them forward.”
When weighing up segregated versus non-segregated assets from a tax point of view, trustees and advisers needed to have a forward-looking approach to a fund’s strategy, particularly in relation to those with a capacity to have capital losses, he noted.
“Segregation is a proactive tax responsibility, so we need to be thinking about these things before they actually occur. We are required to, in many respects, separately account for all the investments and all the expenses of the fund. So you are, in some ways, operating in multiple funds if you’ve got segregated assets and then non-segregated assets under the operational mechanics of the superannuation environment,” he added.
Last year, Act2 Solutions technical manager Rebecca Oakes said SMSFs may be missing out on being able to use the segregated method when calculating exempt current pension income because trustees and members believed they needed to have segregated assets.