Be careful when planning asset sales and pension commencements

If all members of a fund are in pension for the whole of the year, then all of the fund's income, including assessable capital gains, is exempt current pension income and there is no tax to pay.

David Busoli, principal for SMSF Alliance, said he was recently asked a question about what gains may be assessable in a two-member fund.

In the SMSF in question, one of the members has been wholly in pension since July 1 and the other in accumulation. The accumulation member intends to convert their whole balance to a pension from 1 January.

The scenario continued that shortly after the second member converts their balance to pension, the fund will sell several assets with significant capital gains.

Busoli said in this case, gains will not be assessable on the basis that 100 per cent of the SMSF will be in pension at that time.

However, he noted that if all the members are not in pension phase for half of the year but 100 per cent in pension for the remaining half, as per this situation, then by applying the segregated method the income during the period when the SMSF was entirely in pension would be tax exempt.

“An actuarial certificate would be required to determine the tax payable for the first half of the year. As the gains are to be realised in the second half of the year, they would be exempt,” he said.

“The complication is that this would only apply if the segregated method can be used. If it can’t, an actuarial certificate would need to be applied to the whole year which would result in half of the income for the whole year being assessable which would include half of the assessable capital gain.”

The question then, he said, is to know when you can use the segregated method.

“The SMSF cannot use the segregated method if any member has a total super balance of more than $1.6 million at the previous 30 June and a retirement phase pension in any fund,” he said.

“It’s important to note that the total super balance test is $1.6 million, not the $2 million you might expect.”Busoli continued that if the SMSF cannot use the segregated method and the asset sales can be delayed to the following 1 July then, if the SMSF remains solely in pension for the whole year, the 100 per cent tax exemption will apply.

“Even if the fund subsequently included an accumulation account, perhaps due to a contribution, the exempt actuarial percentage would still be much higher as the vast majority of the SMSF would have been in pension for the whole year,” he added.

Keeli Cambourne

December 11 2025

smsfadviser.com