SMSF moving into pension phase & shares held

Say a SMSF has 4 members and on the 1st July 2 of those 4 members both change from accumulation phase to pension phase, what happens with shares held? Say that the main income for the SMSF was from share trading and will continue in the future.

Do all members meet and make a minutes meeting declaring which shares held belong to each member? Previously there was no need to allocate which shares were held by who because all income/losses would be shared by the percentage proportion of each member's balance. If so, I would think people would make the shares held with losses to be allocated to the younger people still in accumulation phase so they can make use of the losses.

Also, say that during the 1st year of pension phase the share trading makes good money for the 2 people in pension phase, there's no capital gains tax or income tax payable. Then near the end of the 2nd year there looks like there will be a loss due to a bad year, if those 2 members are still in pension phase the losses can't be deducted. Say that at the end of the 2nd year the SMSF "forgot" to pay the minimum pensions to both people, therefore it would be non-complying to stay in pension phase for the 2nd year, does that mean that those losses would then be deductible since it will all revert to accumulation phase due to not paying the pension?

 

Strategy - Pension should commence on 30 June, NOT 1st July. Whether you adopt (or are prohibited) an asset segregation strategy needs personal financial and tax advice.. If your SMSF accounting is not currently done using modern software your costs could escalate dramatically too. Modern software caters well for these matter and really will reduce costs and assist good strategy implementation. Old style software etc is appalling for pensions segregation strategies and part year pension allocations etc

And members cant make minutes or resolutions. Only the trustee can do that. And what are you doing about reversionary pension strategies. I typically would recommend a deed be reviewed and updated before doing a thing to ensure the pension is capable of paying a reversionary pension

Paying the minimum pension is a critical compliance requirement. Planning not to pay the min pension is NOT a strategy. Losses carry forward but isf all works well you may never use them. But other family could and that may work well with segregated assets too so your investments and theirs are not in one pool.

 

Hi Paul, why should the pension start on the 30th June rather than 1st July? If the pension starts on the 1st July does that mean that by the end of the financial year the following 30th June you can't pay out a pension until 1st July the following financial year?

 

There is a reason and it can affect CGT issues. Its a common mistake made by those who dont seek advice. I have seen some nasty impacts of the issue too. In a year when a pension starts a CGT gain or loss AFTER the pension starts is still apportioned. Sometimes its small (1 day) and other times its not. I have stopped providing complete explanation for SMSF strategies to limit people seeking free information and making a mess of their position. It is a regulated financial product after all.

Pensions can comprise one or more than one payments. However you cannot commence in the prior year expecting some difficulties with backdating the reporting to the ATO A pension CAN be commenced on 30 June the prior year if that is also reflected in the financial reporting at that time