The ATO’s latest tactical approach involves clamping down on SMSF trustees who shift their assets around before selling them to sidestep capital gains tax.
To do so, the ATO has stated that from July 2014, SMSF trustees will have to attain an actuarial certificate to claim the pension income-tax exemption, or wholly segregate their SMSF assets into those that are in the accumulation phase and those that bear liability for their current pension.
Otherwise, in the event that trustees fail to do so, the consequences can result in the ATO pursuing them under tax avoidance provisions.
Under the current scheme, SMSF assets that are used to pay out pensions are tax-exempt; while assets that don’t currently have any pension liability still incur capital gains tax.
A pertinent concern that the ATO has highlighted relates to trustees moving assets from the accumulation to the pension stage before selling the relevant asset to avoid capital gains tax.
“If an asset is purported to be segregated [i.e. claimed to be in the pension phase and thus tax-exempt] shortly before disposal, and then disposed of in circumstances where a capital gain is claimed to be exempt income, it will be a question of…whether it was invested or otherwise being dealt with for the sole purpose of enabling the fund to discharge liabilities in respect of superannuation income stream benefits,” the ATO’s draft ruling stated.
As most SMSF’s distribute pensions as well as accumulate superannuation, this ruling will have many far-reaching implications.
Basically what it all boils down to, is the ATO clamping down on whether or not trustees want their fund to be treated as a segregated fund; as if so, they need to ensure that their assets are wholly segregated.
One such example includes having a property within a self-managed superfund that is in the pension stage. Thus, a proportion of that property is tax-exempt and the rest is within the accumulation stage. For some trustees, they would say to simple treat this scenario as a segregated fund.
However, the ATO doesn’t think this suffices. If it’s a property, it either sits entirely within the pension pool or the fund is treated as an unsegregated fund. In that case, the trustee will need to obtain the relevant actuarial certificate to ascertain which parts are tax exempt and which parts are not. It is no longer acceptable to simply imply that the fund is segregated (when it’s not) in order to avoid the cost of an actuarial certificate.
Aside from property, other assets likely to be affected by the change are things like joint bank accounts.