Tax Planning Strategy 181 | Start a Pension in a SMSF
Tax planning strategy 181
Australia now has over 570,000 self-managed super funds (SMSFs) that hold $600 billion of investments. The ‘average’ super fund now has a balance of over $1 million, although 45% of funds have less than $500,000 of assets. The SMSF segment is fast growing and now accounts for 29.1% of the $2 trillion invested in Australian superannuation assets.
Starting a pension in a SMSF saves tax. This is achieved as the income from assets held to provide for super income stream benefits is exempt from income tax. This is referred to as exempt current pension income (ECPI). This tax concession means that capital gains accrued on superannuation assets during the fund’s accumulation phase will be exempt if the assets are sold after the fund has moved to the pension phase.
A SMSF can only start paying a member a pension if it has met one of the eleven conditions of release. The two most common conditions of release applied are:
- Reaching age 65 — No restrictions apply.
- Retirement — For a member who has reached their preservation age (at least 56 years old) and never expects to work more than 10 hours per week in the future.
Starting a pension in a SMSF requires appropriate pension-pack documentation including the necessary applications, minutes, notifications and a Product Disclosure Statement to support the establishment of the pension. Expert advice is required.
"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"
- Bono: U2