This is a continuation of the previous article which considered ways of reducing a member’s balance to maximise their ability to make non-concessional contributions.

Asset Allocation

In this financial year assets may be allocated to different member accounts. These are segregated assets. If the high return assets are segregated to the member with the smallest balance a degree of account equalization may be achieved. Any such assets should be designated in the investment strategy effective 1 July 2016. A word of caution however. The ATO regards asset segregation for tax or transfer balance cap adjustments to potentially be caught under Part IVa. Also, from 1 July 2017, any SMSF containing a member with at least $1.6m in super entitlements cannot contain segregated assets for tax purposes. Segregation may still occur to cater for different risk profiles and investment preferences but the exempt current pension income will be actuarially calculated across the whole fund as if the assets were not segregated.

Reserving

If fund returns (rather than being credited to member accounts) are allocated to a reserve, they may then be selectively recredited to a low balance member. This would be acceptable for equity purposes though the ATO has said they may consider any such action to adjust transfer balance caps to be potentially covered under Part IVa. You should also be aware that any such distribution to a reserve which would otherwise have been earned by a pension account will lose its tax exemptness. Also, any distribution to a particular member will be counted against that member’s concessional cap though there will only be a tax ramification if the cap is breached. Any such allocation from a reserve will add to the taxable component if distributed to an accumulation account or will assume the same taxable/tax exempt proportions of any recipient pension account.