ATO flag potential Part IVA issues with ECPI and segregation | Accurium

In a speech to the Tax Institute last month, James O’Halloran, Deputy Commissioner of Superannuation with the Australian Tax Office (ATO) again raised exempt current pension income (ECPI) as a key focus of compliance.

Regarding ECPI the following was said:

Emerging areas of interest are the increased adoption of segregation, and movement of assets into the pension phase, and the use of tax parcel selection and propagation methodologies by funds. This includes the potential application of Part IVA when the selection methodology appears to be to obtain tax benefits and whether the assets have truly been segregated for the purposes of the tax law. We are now considering what advice we can issue to give greater guidance on where the ‘risk flags’ are set and where compliance resources will be allocated for follow up with funds.

This highlights to SMSF trustees the importance of claiming ECPI correctly in the annual return and ensuring appropriate consideration is given to the implementation of segregation strategies.

The speech indicates an increased focus on Part IVA anti-tax avoidance measures. In particular, we expect greater scrutiny of segregation strategies to ensure that they are compliant. We recommend as a minimum that decisions to implement a segregation strategy are documented as part of the SMSFs investment strategy to provide the ATO with evidence that the trustees have made this decision in advance of any tax consequences. The use and scrutiny of segregation strategies is likely to increase with the expected introduction of the $1.6m pension transfer cap.

The application of Part IVA is a tricky one, especially where a by-product of the investment decision is an optimal tax outcome. We look forward to seeing further guidance on the ‘risk flags’ with respect to when segregation strategies might fall foul of Part IVA and will keep you up to date with any information we receive from the ATO on this matter.

To read the full speech visit:

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