{"id":5129,"date":"2014-07-01T18:32:47","date_gmt":"2014-07-01T08:32:47","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=5129"},"modified":"2022-03-07T16:21:01","modified_gmt":"2022-03-07T05:21:01","slug":"td-20147-segregated-bank-accounts-now-made-easy-unsegregated-assets-simple-answer","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/smsf-strategy\/td-20147-segregated-bank-accounts-now-made-easy-unsegregated-assets-simple-answer\/","title":{"rendered":"TD 2014\/7 \u2014 segregated bank accounts are now made easy, so why have unsegregated assets? The simple answer!"},"content":{"rendered":"
\"segregated-bank-accounts-are-now-made-easy-so-why-have-unsegregated-assets\"<\/div>\n

The ATO released Taxation Determination 2014\/7 (\u2018TD 2014\/7\u2019) on 9 April 2014 entitled \u2018Income tax: in what circumstances is a bank account of a complying superannuation fund a segregated current pension asset under section 295-385 of the Income Tax Assessment Act 1997<\/a> (Cth) (\u2018ITAA\u2019)?\u2019. Broadly, TD 2014\/7 adopts a much more practical approach to dealing with bank accounts, and more specifically sub-accounts, than its predecessor Taxation Determination 2013\/D7 (\u2018TD 2013\/D7\u2019), which was withdrawn on 11 December 2013.<\/p>\n

One drawback of TD 2014\/7 is that it focuses on bank accounts and term deposits without considering other assets, including shares. Unfortunately, based on past ATO comments that an asset must be solely (ie, physically) segregated and that part of an asset cannot be segregated, we should not assume the principle in TD 2014\/7 will apply in other situations. At this stage, the ATO has only expressly relaxed its former view in respect of bank accounts, and we expect more ATO news to follow in regards to other assets.<\/p>\n

What does TD 2014\/7 say?<\/h3>\n

Broadly, TD 2014\/7 focuses on when a bank account is considered to be held solely to enable, or for the sole purpose of enabling, a fund to pay pension liabilities as they fall due. This is more commonly referred to as a \u2018segregated current pension asset\u2019. The determination provides examples in relation to bank accounts and sub-accounts, and also informal sub-accounts maintained by the trustee of a complying superannuation fund (or for the purposes of this article the trustee of an SMSF).<\/p>\n

There are six examples that are considered in TD2014\/7 that illustrate when a bank account will be, or will continue to be, a segregated current pension asset, and provide an interesting development in the Commissioner\u2019s view.<\/p>\n

Example 1 \u2014 separate asset<\/em><\/p>\n

This is the least contentious example and is consistent with the Commissioner\u2018s former view expressed in TD 2013\/D7<\/a>.<\/p>\n

Broadly, the example deals with an SMSF that has a bank account and a term deposit that is maintained solely to support a pension, and another bank account used to hold another member\u2019s accumulation interest. There are also other shared assets of the fund. However, the accounting records and financial statements deal with the bank account and term deposit supporting the pension liabilities separately, on the basis that they are held for different purposes.<\/p>\n

In this circumstance, the bank account and term deposit supporting the pension liabilities is considered a segregated current pension asset.<\/p>\n

Example 2 \u2014 a sub-account maintained by accounting software<\/em><\/p>\n

The Commissioner then considers a large fund with a single bank account for many members, in which a sub-account is assigned and maintained for the benefit of each member. The fund\u2019s accounting software allows each sub-account to be segregated and maintained on a daily basis.<\/p>\n

In this circumstance, the Commissioner states that the sub-account that is allocated to a pension member will be a segregated current pension asset.<\/p>\n

Example 3 \u2014 informal sub-account<\/em><\/p>\n

This example considers the issue of whether informal separation would be sufficient to constitute segregation. The facts of the example is that a member elects to be paid a pension after previously being in the accumulation phase and:<\/p>\n

the trustees of the fund effectively create an informal sub-account by maintaining accurate accounting records, and are able to identify at any point in time which portion of the bank account balance supports the new superannuation income stream payable by the fund at that time.<\/p>\n

Examples 4 and 5 \u2014payments \u2018in error\u2019 into a segregated bank account<\/em><\/p>\n

Formerly there has been consternation as to whether a segregated bank account that has received an amount either in error or by misfortune that relates to an unsegregated asset, or general fund liability, would immediately cause that account to no longer be segregated. However, this is no longer a cause for concern, provided proper records are maintained and timely action is taken.<\/p>\n

Example 4 considers the situation where a fund holds 10,000 shares in a company. Out of those 10,000 shares, 3,000 are held as segregated pension assets and are identified in the fund\u2019s accounts as such. The company pays a dividend of $1 per share and makes a single payment of $10,000 to the fund\u2019s segregated pension bank account. The trustee of the fund \u2018as soon as practically possible\u2019 after receiving the dividend transfers $7,000 to the unsegregated bank account and an additional $7, representing the interest component which has accrued in respect of the $7,000.<\/p>\n

Example 5 then considers a situation where a contribution of $10,000 is credited to an existing segregated current pension asset due to an administrative error. Again in this example, the trustee of the fund realises the error and transfers \u2014 or offsets \u2014 the $10,000 plus an amount of $10 representing the interest earned while in the segregated account to the unsegregated account.<\/p>\n

The Commissioner accepts that the bank account will still be a segregated current pension asset in both circumstances. However, the $7 and $10 interest component will not form part of any exempt income under s 295-385 ITAA.<\/p>\n

Example 6 \u2014 incidental payments<\/em><\/p>\n

The final example involves the trustee of a fund making an incidental payment from a bank account that is a segregated current pension asset in relation to a general fund liability (an annual supervisory levy). The Commissioner accepts that the bank account will still be maintained for the relevant sole purpose and will remain a segregated current pension asset. This example does not provide sufficient background information on whether the fund\u2019s two members in pension phase also have accumulation accounts. However, if the fund was entirely in pension mode, an incidental expense such as the fund\u2019s supervisory levy, would not jeopardise the segregated status of the bank account.<\/p>\n

Examples 4 to 6 show that errors can be corrected and do not upset segregation. However, proper records and timely corrective action is generally needed.<\/p>\n

Implications from TD 2014\/7<\/h3>\n

Broadly, the key take away points from the determination is that each of the following will still be segregated current pension assets:<\/p>\n