An SMSF specialist has reminded practitioners and trustees indexation to be applied to the transfer balance cap will have no effect on the threshold that determines whether a fund has disregarded small fund assets (DSFA).
The indexation measures to be implemented on 1 July 2021 will increase the transfer balance cap from $1.6 million to $1.7 million and currently an SMSF is classified as having DSFA if it has a member in retirement phase and at the prior 30 June it had a member with a total super balance of $1.6 million or more.
“In [section] 295-387 [of the Income Tax Assessment Act 1997], the relevant provision that talks about when a fund has disregarded small fund assets, it actually refers to the figure $1.6 [million] in the provision,” Accurium head of education Mark Ellem noted during a technical webinar hosted by his company today.
“It doesn’t say [if a member’s total super balance] exceeds the general transfer balance cap. If it did say that, we would see this test be against $1.7 [million] going forward, but it says $1.6 [million], so in order for that to change they’d actually have to amend that provision and change the figure from $1.6 [million] to $1.7 [million].”
During the session, Ellem also dispelled any misconceptions the term DSFA was in reference to specific assets held in an SMSF.
“[DSFA are not] specific assets of the fund. All of the [fund’s] assets can be disregarded small fund assets, but only if they meet the criteria [contained in the ITAA],” he noted.
“So it’s not [about having to] look at the assets, [as to whether] they are disregarded small fund assets; [you need to] go through that test [as prescribed by section 298-387] and if [these criteria are satisfied], then effectively all the assets of the SMSF [will be] regarded as being disregarded small fund assets.”
Issues relating to exempt current pension income and indexation will be examined in more depth at SMSFPD Digital 2021. Visit here to register for the event.
