This Draft Determination, released on Wed 7.8.2013, sets out the circumstances in which the Commissioner considers that an asset of a complying superannuation fund is a “segregated current pension asset” under s 295-385 of the ITAA 1997. This is a key requirement for a complying superannuation fund to qualify for a tax exemption on certain income (including realised net capital gains) derived from current pension assets using the segregated method.
To satisfy s 295-385, an asset must be invested, held in reserve or otherwise dealt with for the relevant sole purpose of enabling a fund to discharge liabilities in respect of superannuation income stream benefits. According to the Draft, the segregation test applies at the level of each discrete asset, including a bank account, share, unit in a trust or legal title to real property. However, the Commissioner says that an asset cannot be invested partly for the relevant sole purpose and it is not possible to segregate part of a discrete asset. In this respect, the relevant purpose is ascertained from the trustee’s records, financial statements, investment strategies, actuarial reports, bank accounts etc.
Importantly, an asset cannot be segregated to the extent that the market value of the assets exceeds the account balance supporting the benefit: s 295-385(6). For each asset identified as contributing to the excess of the market value over the account balance, the Commissioner says that none of the income received from that asset will be exempt under s 295-385 (although s 295-390 may be applied to exempt a proportion of the income).
The Commissioner also warns that he may apply Pt IVA of the ITAA 1936 if an asset is purported to be segregated shortly before disposal in an attempt to shelter any capital gain on disposal as exempt income of the fund.
DATE OF EFFECT: Once finalised, the Determination is proposed to apply from 1 July 2014.
COMMENTS are due by 4 September 2013. ATO contact: Mladen Bajic – Tel: (02) 9374 8096; Fax: (02) 9374 2693; Email: mladen.bajic@ato.gov.au.
[LTN 151, 7/8/13]