Draft Tax Determination 2013/D7 released on 7 August 2013 provided much awaited guidance from the ATO on the circumstances in which an asset of a super fund would be considered a segregated pension asset. Unfortunately, the tax office withdrew TD 2013/D7 noting that after receiving a number of submissions during consultation it became clear that the approaches to segregation varied materially across the industry.
Why was the Determination withdrawn?
This consultation process perhaps brought to the Commissioner’s attention the increasingly complex segregation strategies being applied across the industry and the wide range of approaches used to implement them. In particular, the draft determination wasn’t clear on how ‘hybrid’ segregation (where some assets in the self-managed superannuation fund (SMSF) are segregated and some are not) should be treated or on the approach to be taken where a fund moves in and out of segregation multiple times during a financial year.
The issue of separate bank accounts was evidently also a key topic of many submissions as the ATO has subsequently released a Tax Determination dealing specifically with the issue of bank accounts (TD 2014/7).
The tax office notes that they will further consider and consult on segregation. However, the form and timing of this further consideration is not specified.
In our submission on the Draft Tax Determination we identified several areas which could be further clarified, including the use of separate bank accounts. We were hopeful that a finalised Determination would provide certainty for the industry on how the ATO expected segregation to be implemented in practice. However, it appears that the ATO are only now appreciating how segregation is actually being implemented in practice, and perhaps current practice is more complex than what they expected.
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