Once a fund stops paying a pension to members who die, investment earnings that have not been taxable come back to life as tax generators.
Some of these investments may have a significant tax bill, given capital gains on investments are assessed on the original capital cost - which could go back many years. When a SMSF begins paying pensions,
taxes on earnings, such as dividends, interest and capital gains cease. But tax liability only becomes dormant. It can resurface if investments in the fund are sold to pay death benefits.
-From AFR March 17 2007
Who said the AFR is not your friend?
