The new superannuation balance cap rules introduced this month have added to funds’ administrative load and now the Australian Taxation Office is adding more, according to an industry body.
The Actuaries Institute has raised concerns about the way the Australian Taxation Office is interpreting an aspect of the new superannuation rules, which deal with segregated current pension accounts.
Rather than having a choice over whether to segregate certain assets to support pension liabilities, the Actuaries Institute says the ATO deems assets to be segregated if the fund’s only superannuation liabilities are in respect of account based type pensions.
“This will force many funds to use two different methods, the segregated and unsegregated, to claim exempt current pension income, adding administrative complexity,” the Actuaries Institute says.
Under superannuation rules, fund trustees can elect for certain assets to be “invested, held in reserve or otherwise dealt with” for the purpose of enabling the fund to discharge its pension liabilities. In this way, those assets are segregated to support income streams.
Where a fund’s only liabilities during the year are in respect of prescribed income streams – that is, it is solely in pension phase – the fund’s assets are taken to be segregated current pension assets and all are income tax exempt.
The other way of claiming exempt current pension income is to use the unsegregated method, which requires that the calculation of the tax-exempt portion excludes liabilities in respect of assets that have been set aside as segregated current pension assets.
Industry practice has been that unless a fund is solely in pension phase for an entire come year, the trustee can elect to use either the segregated or unsegregated methods when claiming exempt current pension income.
The ATO’s view, expressed in a guidance note, is that if the fund assets were at a time solely supporting account-based type retirement phase income stream liabilities, then those assets are deemed to be segregated pension assets.
Should the fund also have unsegregated assets at some point during the year, then the income stream liabilities in respect of the deemed segregated assets must be excluded from the calculation of the tax-exempt portion.
The Actuaries Institute says: “Asking SMSFs to comply with this interpretation will increase compliance costs and cause disruption for the industry with no discernible difference in tax revenue.
“The accounting processes for funds using the segregated and unsegregated methods are different. By deeming certain assets to be segregated, the ATO will force many funds to use both methods during the same year.”