Superannuation, Tax

Balance equalisation appeal to rise

balance equalisation strategies

Equalisation strategies may increase in their appeal as a method to counter the proposed new tax on member balances above $3 million.

A technical specialist has recognised actions such as member balance equalisation strategies are now likely to become more popular among SMSF trustees as a means to minimise the effect of the government’s proposed $3 million soft cap.

“Equalisation strategies, like with the transfer balance cap where a couple wants to ensure they don’t have a scenario where one of them is well over the transfer balance cap and one is well under, you want to keep their balances even or keep them both below their respective transfer balance cap, the same thing will be seen here as well,” Accurium head of education Mark Ellem told delegates at a recent technical webinar.

To this point, Ellem acknowledged SMSF trustees would not want one member of the couple to have a balance that is in excess of $3 million while the other has a balance that is well below that imposed threshold.

Equalisation strategies involve the process of having one member withdraw money from the SMSF and then having the other member recontribute the amount back into the fund, and as such he warned other factors will have to be taken into account before implementing this type of action.

“[They have to be mindful that to make a withdrawal] they’ve got to be able to satisfy a condition of release with a nil-cashing restriction,” he noted.

“Okay we get it out, but these people [by nature] will have high balances and that might mean maybe they can’t get the contributions back into the fund because their total super balance at 30 June prior is in excess of the general transfer balance cap.”

The desire to avoid being caught by the newly proposed charge could also see an increased implementation of transition-to-retirement income stream strategies, as well as contribution splitting strategies, but all in the context of the existing superannuation legislation and regulations, he suggested.

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