Carrying forward significant capital losses can be a viable strategy for trustees wanting to offset gains and achieve tax savings in the near future.
This kind of strategy is suitable in circumstances where it is likely that younger members may join the fund or when members are considering switching back to the accumulation phase.
One way SMSF trustees can carry forward capital losses is to set up a small accumulation balance once their assets are realised at a loss.
Funds with assets which support pension and accumulation liabilities can use the unsegregated method to claim ECPI (exempt current pension income), as capital losses on unsegregated assets can be carried forward each year, even when a fund is completely in pension phase.
Trustees that realise losses may also want to consider whether having an unsegregated fund may be more beneficial than a segregated fund. Segregated funds hold separate asset pools specific to members or pension and accumulation balances. Unsegregated funds have one large asset pool and all members share the combined investment returns.
To claim ECPI in an unsegregated fund, an actuarial certificate is required each financial year. Since the fund will have a small accumulation balance, the income earned will not be entirely tax-free. However, the cost of paying a small amount of tax and obtaining an actuarial certificate may be offset by tax savings in the future which are obtained from carrying forward the capital loss.
