Q: Sally manages her own SMSF, of which she is the only member. The fund is in the accumulation phase and is made up of one third tax free component and two thirds of taxable component. She decides to transfer only part of her benefits rolling over to an industry superfund. Can she elect to transfer money from one component only, for example, from the taxable component, or is she obliged to use the proportioning and indicate in the rollover statement one third tax free and two thirds taxable components. I could not find any unequivocal authority setting up this particular matter.
A: So, this comes back to the very basis of the super reform measures around accessing benefits proportionately. We can’t cherry pick tax components. We can’t say, just roll over my tax free or just roll over my taxable. That would be so good if we could do that. The tax planning would be fantastic. But unfortunately, no, we can’t.
All withdrawals, including any rollover being made within the superannuation system, has to be carried out proportionately. Remember, the tax components of our accumulation account, which we’re looking to roll over, will often change. They can change daily as all the earnings get allocated, stacked on top of the tax component. Any lump sum that we pay from the accumulation account, any rollover from the accumulation account, must be carried out proportionately. We can’t just roll over one part and not the other.
You mentioned in your question that there was no real unequivocal authority on this particular issue. There is, if you go looking for it, it is within the legislation quite clearly around proportioning. Rather than bore you with that, I just went on to the ATO website as the regulator for SMSFs, but also, particularly because it references the legislation, and it sets this out.
I’ll read it to you just so you can see what the ATO quite clearly set out “under the proportion rule, the tax free and taxable components are taken to be paid in the same proportion as the tax free and taxable components in the fund. For example, if 30 % of the member’s interest consists of tax free and 70 % taxable, then the benefit you pay from it must also be 30% and 70%. The proportioning rule prevents a member choosing which components to withdraw when a super benefit is paid. This means that they cannot choose to withdraw just the tax free component. The value of the super interest and the amount of each component is determined at the following times. And the last top point is just before you make the rollover”.
So, there is an authority on that question. It is straight from the ATO website. The proportioning rule must be applied even to rollovers.
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