While single bank accounts seem lucrative, they are beset with quite many traps. Unless you comprehend the risk-benefit equation properly, there is no point venturing further. SMSF practitioners would definitely have felt relieved when the ATO declared that they could hold segregated pension assets even within a single bank account.
Single bank account
There is no doubt that the single bank accounts are laced with positives. But have you sit back and considered the administration costs, fees and the risk factor associated with segregating assets in the first place?
How assets may be segregated lawfully
Let’s begin from where it should be begun. There is no tax levied upon income that you earn through segregated assets for the purpose of underpinning your current pension liabilities. Of course, the assets can be segregated in the given style only when their combined value is in deficit of the pension accounts. Also, it is not possible to segregate a fraction of the asset. To explain via an instance, you cannot use a part of your SMSF- enabled property’s value for supporting the pension.
The crux question is handled this way- you can share a bank account between segregated and unsegregated assets, but there has to be proper documentation for it. So, it has definitely been good news for the trustees. It is a comforting knowledge that they can segregate assets even while holding one account.
Tracking “cash flow into sub-accounts” is a tough job
Be wary, however, of the administrative issues which need to be tackled here. A segregated pension strategy for your assets is all good but then you must be in a position to recognize the income generated via those assets. Above this, you must also be able to track cash flows emanating out of and coming into the segregated pool of assets. The recommendation is simple- if you are using a single account, employ national bank accounts through which to share the interest generated from assets.
The enduring problem with such sub-accounts is that you may not be able to keep a tab on the individual balances and this may lead to a situation where the trustees overdraw from their segregated pool of assets. Tracking the balance of the sub-accounts becomes even more difficult because of entries pertaining to rental income, expense on property, repair and administrative costs, among other things.