Pensions / SMSF / SMSF Strategy

16 thoughts on “How a $1 accumulation account could allow you to carry forward a $100,000 capital loss

  1. Hi Aaron – you have written “Where all members are in pension phase, the assets of the fund become segregated” – how can this be so? I would have thought that there would need to be some type of physical transaction to segregate assets in a super fund? Is this a deemed segregation or do you believe that this segregation happens automatically when there is no active accumulation balance in a super fund? I would appreicate your thoughts. Thank you.

  2. Hi Aaron,

    I am agree with your view but BGL has different view on this matter.
    BGL software still calculates and carry forward capital losses even fund members are in 100% pension phase. If you have access of BGL wiki article number 13295 and 13567. The second article is based on their confirmation and discussion with the ATO!!!!

    As per BGL if all members are in pension phase or even actuarial certificate says 100% of the assets are backing the pension, it should not change interpretation unless fund specifically segregate the assets.


    Ashok Tulsiani

    • Thanks Ashok, I will have a look at further and respond accordingly. Again, sounds like another example of further clarity needing to be provided by the ATO.


  3. This is the extract from the ATO website, which appears to contradict the advice received by BGL (also from the ATO).

    “…Where all SMSF fund members are receiving a pension and the combined account balances of these pensions is equal to the market value of the fund’s total assets, in effect all assets of the fund will meet the requirement of being ‘segregated’ as they have the sole purpose of paying super income stream benefits. In this situation the ATO will accept that the SMSF is not required to identify individual assets as being dedicated to funding a super income stream benefit.”

    Having discussed this issue with several people within the industry over the last few days, the view above is the consistent view taken within the industry.


  4. Hi, I also had discussions with a BGL representative several months ago on this issue as we have now started using BGL to lodge the annual return and need it be correct (i.e. capital gains and losses need to be disregarded if fund in 100% pension mode). In short, the software currently doesn’t handle this situation well at all, but we have found a work-around that allows it to be shown correctly in the annual return. The problem with their software appears to be that it does not recognise that a 100% actuarial exemption is equivalent to being 100% segregated. Unfortunately, I would imagine that there are a lot of administrators getting this aspect wrong because they think it must be right if the software says so.

    Thanks for such an informative site.

    Karen Barnes

  5. Hi Aaron,
    are you saying that all of the capital loss would be carried forward or would the % of loss that would be carried forward be determined by the Actuary Percentage.

    Whilst the member(s) remain in allocated pension phase there is no real issue. However when the pension member dies the ability to carry forward the capital losses would be significant.

    If it were true that all of the losses could be carried forward then there is a prima facie case for everyone maintaining some accumulation benefit (if the fund owns shares & / or property).


    • Hi Graeme,

      Yes, the total value of the carry forward capital loss can be carried forward. The exempt current pension income % does not apply to the capital loss to be carried forward,as the actuarial percentage only applies to the net capital gain.

      Therefore, having the small accumulation balance can be very beneficial if there are significant capital losses in a financial year.


  6. Hi Aaron
    Just wondering if the fund is in full account based pension, provided there are no contribution then all the earnings will be tax free. I’m trying to think why would you want $1 in accumulation account if all the members are in pension and if they did sell the shares it would be all tax free. Am I misunderstanding any aspect of the legislation?

  7. Hi Aaron,
    It is not clear to me from your article whether accumulated capital losses the SMSF had PRIOR to all the members moving into pension phase would be lost or only those new capital losses after the SMSF was 100% pension phase. EG. If on 30 June 2010 the SMSF had $50,000 capital loss and has two members, one in pension and one in accumulation. On 1 July 2010 the accumulation member starts a pension with their total balance so now fund is 100% in pension phase for 2010/11 year. Is the $50,000 accumulated capital loss lost? Or can it be used in the future if there are funds in accumulation again, i.e from pension commutation, on death of member etc?

    • Hi Nilesh,

      Any capital losses carried forward prior to the pension commencing can continue to be carried forward until such a time that the capital losses are required to be absorbed against capital gains.


  8. Hi Aaron,

    Will capital losses carried forward prior to the pension commencing be offset against net capital gains from full pension phase? Or net capital gains when a fund is in full pension phase are simply disregarded without offsetting any carried forward capital losses? Bendzulla seems to be of the view that the former is the case.

    Where it says “A fund can however continue to carry forward capital losses from previous financial years when the fund was not fully in pension phase until they are fully offset by capital gains.” and a number of scenarios are also discusses in the article.

    Also, where a fund has two segregated member accounts, can capital losses of one segregated member offset the other segregated member’s capital gains?


    • Hi Peggy,

      Where the fund has moved to being fully segregated, those capital gains and losses are simply disregarded (s.118-320, ITAA 1997) – they do not get included on the SMSF Annual Return (SAR). Where there are prior year capital losses, these amounts will simply carry forward until such a time that the fund is required to calculate any capital gains and losses using the method outlined within s.102-5 of the ITAA 1997. This section outlines the 5 step process in calculating the next capital gain for the income year.


      • Thanks Aaron,

        One other question, where a fund has two segregated member accounts, both in accumulation phase, can capital losses of one segregated member offset the other segregated member’s capital gains?


      • They will in the context of the SMSF annual return as the fund needs to consider all capital gains and losses to determine the tax position. Typically following on from this, the allocation of net income and taxes will be reflective of the specific outcomes attributable to each member.

        I trust this makes sense.


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