The ATO has recently released a draft taxation determination – TD 2013/D7 – setting out their views on what a super fund needs to do to segregate its pension assets and, therefore, ensure that income from those assets is exempt from tax, without the need to obtain an actuarial certificate.
Although it is only a draft, it provides very practical guidance, and is crucial reading for super funds.
An asset of a super fund will be “invested, held in reserve or otherwise being dealt with for the sole purpose of enabling the fund to discharge liabilities payable in respect of superannuation income stream benefits” (i.e., pensions), where the whole asset is so invested, held or dealt with.
To meet the requirements of S.295-385(3)(a) or (4) of the ITAA 1997 regarding segregation:
• an asset cannot be partly invested held or dealt with partly for the relevant sole purpose and partly for another purpose; and
• part of an asset cannot be invested, held or dealt with for the relevant sole purpose, and another part of the asset invested, held or dealt with for another purpose.
This applies to each single, discrete, indivisible asset at law, including a bank account (being a “single chose in action at law”). Practically speaking, this means that a superannuation fund will often require two separate bank accounts in order to maintain one of them as a segregated bank account. That is, a separate bank account will need to be held for the relevant sole purpose, and another bank account my need to be held for other or general purposes, to properly segregate the bank account held for the relevant sole purpose.
The draft determination acknowledges that, in relation to shares in companies and units in unit trusts, each share or unit represents a single asset, which means that a parcel of shares or unit can be segregated, provided the segregation is evidenced in the records of the fund, such as trustee, resolutions, accounting records, financial statements, investment strategies or policies, actuarial reports of certificates, bank account statements and share holding statements.