Q&A: When I retire, can I transfer the cash assets to my share of the SMSF?

What you are looking at here is quite a specific issue, but again, I can take you through what those specific issues are. What I’m talking about here or what you might be alluding to here is what’s referred to as asset segregation.

It’s a way where you as a member of a fund and as a trustee of your fund, identifying a specific asset that the SMSF has and allocating that specific asset to either a member of the fund or in some cases to a class of members, for instance, all pension members or all accumulation members. So we choose an asset, we identify it, and we say this particular asset is being held only for our pension members or our accumulation members.

Now, once we’ve done that, we need to keep in mind that all income that is sourced or generated from that asset needs to be allocated to that member or to that class of member. Because even though it’s a fund asset, we’ve said it’s that particular fund member’s interest in the fund that owns the asset or has the right to the asset.

So all income and expenses from the asset still need to be held separate, what we call segregated. If we’re doing that and we’re saying that a particular asset is a pension asset, we need to make sure that the income from that asset or any other asset used to pay pensions is enough to pay out that minimum pension each year. We need to ensure that it meets the cash flow requirements.

Now, conversely, the opposite of that. If there’s no cash maintained for the non-pension members. Let’s just say that the accumulation members only have shares in companies that don’t pay dividends. Well, how is that part of the fund going to meet their share of the fund expenses like tax, accounting, their share of those sorts of expenses? Not only do you need to think about what asset might be a pension asset, but will it fulfill those requirements around cash flow?

Once you’ve done this, and really the way you do its paperwork, you do it by way of a trustee minute to say, ‘this asset is being held’. If I go back to your question, you’re saying, I want to hold the cash in the retirement phase. Thinking about that, you have a trustee minute and its saying that this asset being cash at bank or bank account A, is being held for the pension members for these particular reasons. You would have the paperwork to show that.

Now, we can’t change the status of that asset from being a pension asset to being, for instance, an accumulation asset if we’re only doing it for a tax purpose, we can change the status of segregation. We can change an asset from being pension to accumulation, but we can’t do it where the sole intention is to get a tax benefit.

There could be reasons when you need to do it. For instance, you might identify a property as being a pension asset and you might lose the tenant. You might not have a tenant for two or three years. Well, how is a pension going to be paid when there’s no rent coming in? Yes, what you’ve proposed can work. You just need to check your trust deed for any specific rules.

Look, I also hate to keep saying it time and time again, but in your case and with the specifics of your questions, I would consider you get specific and personal advice on that issue, particularly around tax. What I’m getting at here is you’re looking at holding all your cash in the tax-free area of super. Cash doesn’t grow, so there’s no capital gains tax relief there. What I’m just saying to you is it could be worth you getting some advice on this to get some better outcomes that you may not see.

Achievable, just some issues to consider.