Author: Hilliard Gar
When it comes to determining the amount of taxation payable on investment earnings in Self Managed Superannuation Funds, there are different rules for funds in an accumulation phase than there are for funds that are in a pension phase. But what do you do when your fund is a combination of these?
When a fund is solely in pension phase, currently investment earnings are tax free, whereas for a fund in an accumulation phase, investment earnings are generally taxed at a flat 15% rate of tax.
A fund that is both in a pension phase and in an accumulation phase has the choice of utilising what is known as the segregated method or the unsegregated method. The choice between these can provide a substantially better after tax return to fund members.
The unsegregated method is the easiest one to maintain and administer. All of the fund’s assets and investment earnings are combined and a proportional split of earnings between accumulation accounts and pension accounts determines those earnings that taxable and those that are tax free. The proportional allocation (or percentage) is verified by an Actuary certificate.
The Segregated Method requires the Pensions Assets to be separated from the other assets. As a result, there is a lot more administration with this method, however with the correct planning, the return on assets can be greater than that achieved using the unsegregated method. Typically, assets that benefit from segregation are:
- those with a historically low cost base and higher current market value
- assets that do not have tax credits associated, such as unfranked dividends, interest and rental income.
- high growth assets
To discuss this in more detail, contact your accountant or send a quick message to JMp’s Superannuation Division.