Q: I run an SMSF with my wife as the other trustee. To plan ahead for the possible franking credit changes, I am asking whether it is possible to transfer say $50,000 into an APRA-regulated fund under our SMSF name and then wait until we seek the outcome post-election? We may transfer a larger portion from the SMSF if the changes Labor is proposing are introduced.
A: The executive manager SMSF technical and private wealth at SuperConcepts, Graeme Colley, says he has been approached by a number of clients in recent months asking about moving some or all of their money out of their self-managed funds. Colley’s advice on all occasions has been to wait.
“Some people are looking at taking money out to invest in real estate, while others are talking about upgrading their homes as a way of creating wealth in a tax-free environment,” Colley says.
“I am telling them to look before they leap. The franking credit rule will not change unless Labor is elected, and even then there is no guarantee the party would have a majority in the Senate. And even if it gets its reform through, we don’t know what final form it might take.”
Colley warns that trustees who shut down their SMSF or transfer assets out of it may be swapping one tax headache for another.
A transfer out of an SMSF to an APRA-regulated fund would represent a change of beneficial ownership and in that circumstance any capital gains accrued on the assets would be taxable.
“If an asset goes from one fund to another the beneficial ownership changes. The tax you would pay depends on whether you are accumulation or pension phase,” Colley says.
“If you are in pension you won’t have to pay any tax but if you are accumulation CGT would apply. It is a more feasible strategy for people in pension phase but I would still be waiting.”
Tags: franking credits, SMSF, SuperConcepts