Segregation rules for an SMSF are complex, and there are some limitations to segregation within Class. This article looks at those limitations, and when such segregation may potentially cause non-compliance with SIS/ATO requirements.
- Class currently does not provide functionality for a percentage of an investment asset or investment pool to be used for pension purposes and the remaining percentage used for accumulation purposes.
This prevents a scenario where an asset (e.g. property) is partially segregated for pension and partially for accumulation balances, as ATO clearly does not allow such arrangement. The ATO insist assets segregated for pension purposes need to be clearly identified and separated.
- If the property is “segregated” for Stamp Duty requirement and in the ratio 50/50 to a husband and wife within an SMSF, and say the husband enters into pension phase while wife is still in the accumulation phase, then you may potentially have a conflict with State legislation (Stamp Duty Act) and Commonwealth legislation (SISA/SISR)
- Another important consideration is if a property, as a single asset, is segregated for pension purposes, then you must consider whether there is enough net rental income to meet minimum pension drawdowns, i.e. at least 4% of pension balance if not more. This may potentially cause a problem for you if this is the only asset in the segregation pool for pension purposes.
- There is no functionality to segregate one asset to a member and that member also receive a share of income from all other investments in Class.
See How to process partial segregation for property stamp duty in Class for a workaround for processing segregation for property stamp duty in Class