Do the assets in the SMSF that are funding the TRIS have to be segregated?
More particularly, in order to calculate the proportion of an SMSF’s income that is exempt, there are two possible approaches that may be adopted.
First of all, the assets that will support the pension may be segregated, and held solely to enable a fund to discharge its pension liabilities (however, note that the ability for an SMSF to utilise segregation may be removed from 1 July 2017, if any one member of the fund has a total superannuation balance greater than $1.6 million). In this case, it is necessary for specific assets to be identified to ensure they are isolated from other assets. Gains and losses associated with those assets can then be traced via the accounting system. Typically, a trustee resolution may be used to document the list of segregated assets.
Alternatively, rather than segregating the assets, it is possible to pro-rate the pension exemption based on the balance of the assets applied towards the pension compared to the total fund balance.
An actuarial certificate will be required if some or all of the assets backing a pension are unsegregated. However, where all of the assets backing a TRIS are segregated, an actuarial certificate is not required by the fund.
Expert advice should be obtained if there is any doubt in deciding whether or not to segregate assets, due to the complexities involved.