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My understanding is we can use segregated method and allocate assets to pension balance. Only a full asset can be segregated. But a bank account can be subdivided into sub accounts in ledger. Please share your thoughts.
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Hi Gulshan
Thanks & agreed you are correct re the $1.6M cap still remaining and not increasing to $1.7M.
The TSB threshold for working out if someone has disregarded small fund assets or not for purposes of when a Fund can use segregated method for ECPI is not linked to the general TBC and it remains at $1.6M in 2021/22. This $ number is written in the legislation (in the ITAA).
The ITAA at section 295.387 states that for disregarded small fund assets just before the start of the year "a person has a TSB that exceeds $1.6M".
Thanks
SMSF AAA
Hi Gulshan
Yes you can use the segregated method to calculate ECPI if no member has a total super balance (TSB) greater than $1,600,000 (increased to $1,700,000 from 1/7/2021) at the start of the financial year. You can allocate specific assets to a pension balance. The bank account can be subdivided into sub accounts and an account allocated to a pension balance.
The ATO addresses the bank account being able to be subdivided into sub accounts in the following tax ruling:
Tax Ruling TD 2014/7 - Income tax: in what circumstances is a bank account of a complying superannuation fund a segregated current pension asset under section 295-385 of the Income Tax Assessment Act 1997?
It states:
"Example 3: Change from accumulation phase to benefit phase
18. A complying superannuation fund has one bank account with a balance of approximately $750,000 from time to time, maintained for its only two members, both of whom have been in accumulation phase. $350,000 relates to Member X and $400,000 relates to Member Y. The superannuation fund has other assets.
19. Member X reaches retirement age and elects to be paid a superannuation income stream and receives superannuation income stream benefits.
20. Although the bank does not formally provide separate sub-accounts, the trustees of the fund effectively create an informal sub-account by maintaining accurate accounting records, and are able to identify at any point in time which portion of the bank account balance supports the new superannuation income stream payable by the fund at that time.
21. As a result, the new informal sub-account (initially with a balance of $350,000) supporting the superannuation income stream benefit payable by the fund will be a segregated current pension asset."
Thanks
SMSF AAA