Question: I have an SMSF with two members, myself and my wife. We are both in pension phase with account based pensions, and each of our balances is in excess of $1.6M. All of our assets are either Australian shares or cash. In preparation for the super changes I have opened a new broking account and a new bank account to hold those assets that I intend to keep in the pension account. I intend to keep the highest yielding assets in the pension account and commute the rest to an accumulation account. I have already instructed the trustee (a company) to do this.

My question relates to the assets that will be commuted to the accumulation account and the revaluation opportunity. I intend to revalue the assets where appropriate because I am a long-term investor. My question is, what is the impact of electing to commute an asset before a dividend is paid. For example, I have some BHP shares that I bought originally for $23.09. I could reset the base on 25/01/2017 when the hit $27.95. However, they paid a dividend on the 28/03/2017. If I reset the base (commute to the accumulation fund) before this date, do the dividends then become taxable at 15% because they’re in an accumulation fund? In other words, do I have to wait until after the dividends are paid before commuting the assets?

Answer (by Graeme Colley):

As the fund is providing only pensions to members and does not have amounts in accumulation phase, the fund is considered to be segregated for tax purposes for this financial year. If the fund is to be treated as a segregated fund for the whole of the 2016/17 financial year, the CGT cost base reset will apply only to the value transferred from pension phase to accumulation phase. As this requires the recognition that the investment has been transferred, it is as though the investment has been sold from the pension phase of the fund and acquired by the accumulation phase of the fund. Therefore, at the time of transfer, any taxable capital gain due to the transfer will be ignored. As part of this transaction, the pension in the fund will be commuted to reflect the transfer.

After the asset has been transferred to accumulation phase, any income received after the date of transfer will form part of the income earned on assets in accumulation phase and be included in the taxable income of the fund. In the example you have provided about BHP shares, the shares were transferred from pension phase to accumulation phase on 25 Jan 2017, which means from that time, any dividends received on the shares in accumulation phase will be taxable to the fund. The dividends received by the fund on 28 March 2017 in accumulation phase will be taxed.

If you wish to have the dividends from the BHP shares included in the pension phase of the fund, the commutation of the pension to transfer the asset to accumulation phase should take place after the payment of the dividend as it would remain in pension phase up to the time of the commutation.

Questions: My wife and I have a SMSF and our ages are 60 and 63 respectively.

Currently my wife is receiving a Simple Account Base Pension as she has stopped working a couple of years ago to look after her sick father etc. etc.

She has been offered a part time job which she is considering taking up before the end of this financial year.

Given she does accept the job position could you please advise on the following:

• Will she be able to make concessional contributions?
• Will she be still able to draw the pension? Does it have to be changed to a TRAP?
• Am I able to spouse split my contributions on the 30th June 2017 for the full 85% allowable as at that date she will be employed?

Answer (by Paul Rickard): Thanks for the questions.

• Yes – up to the concessional limit. These will go into an accumulation account – she won’t be able to access these contributions until she satisfies a new condition of release (for example, as she is over 60, she ceases an employment arrangement);
• Yes. As she has already satisfied a condition of release, she can continue to draw down on the pension. She doesn’t have to convert it back into a TRAP;
• Yes.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.