This determination asks and answers the question “in what circumstances is a bank account of a complying superannuation fund a segregated current pension asset under S.295-385 of the ITAA 1997?”
Income derived by a superannuation fund from segregated pension assets is exempt from tax – refer S.295-385 of the ITAA 1997.
An asset is a ‘segregated pension asset’ if it is invested, held in reserve or otherwise being dealt with for the sole purpose of enabling the fun to discharge its liabilities in respect of superannuation income stream benefits (i.e., pensions).
According to the ATO, a bank account will meet this requirement, and will have the relevant sole purpose, where “the whole of the account is so invested, held or dealt with.”
Some banks offer what are commonly referred to as ‘sub-accounts”. Where all transactions and balances are recorded, maintained and reported on a sub-account basis, then a sub-account held for the relevant sole purpose may be a segregated current pension asset for the purpose of S.295-385.
ATO confirms that this interpretation applies to:
• actual sub-accounts which are formally maintained by banks; and
• informal or notional sub-accounts where proper accounting records are maintained by other non-bank parties (for example, a trustee of a superannuation fund).
Income paid to, or expenses paid from, segregated bank accounts
Some receipts or outgoings will of necessity be paid to or from a single bank account even if they require apportionment between:
• liabilities in respect of superannuation income stream benefits payable by a fund at that time (i.e., pension liabilities); and
• other liabilities.
Where such amounts are paid in a bona fide manner to or from a segregated current pension asset, being the segregated bank account, in order to maintain segregation of the bank account, the Commissioner will require the fund to make a transfer or set off (equal to the value of the receipt or outgoing that does not relate to the fund’s pension liabilities) between the fund’s segregated bank account and another bank account within a reasonable time.
When interest income is derived on amounts that were paid to a bank account that is a segregated current pension asset in the above circumstances, then any interest that is attributable to the amount required to be transferred or set off as explained above is taken not to have been earned by the segregated current pension asset (i.e., that portion of interest is not exempt income).
Some essential incidental expenses payable by a complying superannuation fund may relate to the operation of the fund generally (e.g., the SMSF supervisory levy) and might not be subject to apportionment.
Payment of such essential incidental expenses from a segregated bank account will not prevent the account from being a segregated current asset held for the relevant sole purpose.
Misstates regarding superannuation contributions
There may be cases in which a superannuation contribution is made in error to a bank account or recorded against the incorrect sub-account and that particular bank account or sub-account is a segregated current pension assets.
The amount of the superannuation contribution must be transferred to the correct bank account or sub-account within a reasonable time.
Any interest income that is earned on that superannuation contribution is taken not be attributable to the segregated current pension asst, and would not form part of any exempt income under S.395-385.