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Sale of Property & Pension Commencement - a member commenced an account based pension on 16/09/2020 after turning 65. The main asset of the Fund was a residential property, the contract on which was exchanged on 28/08/2020 (and settlement was on 09/10/2020). There was a gross capital gain on the property of $163,787 - the accounts show that the capital gain was apportioned between the period that the member was in Accumulation Phase (up to 15/09/2020) and the period that the member was in Pension Phase. Resulting in a portion of the capital gain being taxable and the balance being tax free - is this the correct treatment? Any input would be appreciated.
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Hi Ronald
Firstly, I assume the sale date for CGT purposes is the contract date being 28/8/2020.
The exempt income pension calculation is complicated & does depend on the exact circumstances of the Fund and I do not have all the information to advise if the calculation is correct. My view is I would need to review the actuarial certificate that has been prepared to review the calculation. If you want to send a copy of it to SMSF AAA (with names deleted) for me to check it please let me know & I will advise you of the email address to send it to.
In relation to the calculation I advise as follows. If the proportionate method can be used then the calculation may be correct. I do not have enough details to advise if this method has to be used in your situation. The proportionate method has to be used if the Fund has "disregarded small fund assets" for the year. A Fund has "disregarded small fund assets" if a member of the Fund has a total superannuation balance greater than $1,600,000 at 30/6/2020 and had a retirement phase income stream.
If the Fund had another member & they had both an accumulation balance and a pension balance or if the member you refer to also had an accumulation balance for the whole year then the proportionate method would be used.
Based on your example if the Fund has gone from entirely in accumulation mode to entirely to retirement mode during the year it may be deemed as having segregated current pension assets. That would mean the income and capital gains received prior to starting the pension on 16/9/2020 would be taxable. The income received after pension commencement would them be received tax free.
As noted above my view is that we need more information to determine if the calculation is correct.
Thanks
SMSF AAA