The ATO has responded to confusion regarding the partial segregation of assets for pension purposes and expressed concern over certain property arrangements in SMSFs.
Speaking at the CPA SMSF conference yesterday, the ATO's Kasey MacFarlane, assistant commissioner, SMSF segment, superannuation, confirmed SMSF trustees cannot segregate part of an asset.
ATO determination TD 2014/7, issued last year, specified the circumstances in which the bank account of a complying super fund is a segregated current pension asset, Ms MacFarane said.
“Since issuing this determination we’ve received a steady flow of questions with respect to the partial segregation of other asset types,” she said, but noted the tax office considers “that it’s not possible to segregate part of an asset”.
“If you can’t separate an asset – for example, a holding of real property – how can you demonstrate the asset was separate and held solely to support pension liabilities?”
This did not apply to parcels of shares, however, given that each individual share was an asset in its own right, she added.
“If the fund holds 100 shares in a company you could say, for example, that 50 were segregated," Ms MacFarlane said. "We would expect this segregation of assets and the related income to be appropriately documented as being so."
Ms MacFarlane also discussed the ATO’s concerns about some SMSFs' inability to make pension payments because of significant allocations to real property.
“It’s not my intention to comment on whether or not real property is a good long-term investment; I just want to point out that it is undoubtedly a lumpy and illiquid asset and can present a liquidity problem, especially when it’s an SMSF’s major asset,” she said.
“For example, we see SMSFs paying pensions where the net rental income is insufficient and there are no other liquid assets or contributions being made to the SMSF.”
Ms MacFarlane said this issue is often exacerbated in situations where the main asset in a SMSF is business real property leased back to a related party.
“Not only is the fund in jeopardy of failing to make the required minimum pension payments but in precarious economic times, such as the 2008 GFC, where the related party’s business also suffers, SMSFs can also lose their tenant or the commerciality of the lease arrangement can come under pressure,” she said.
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 22 Sep 2017ASIC permanently bans SMSF property spruikerBy Miranda Brownlee
- 22 Sep 2017Male SMSF investors ‘bigger risk takers’, says reportBy Staff Reporter
- 22 Sep 2017Lawyer flags subdivision trap with downsizer contributionsBy Miranda Brownlee
- 22 Sep 2017ATO urged to address ‘unknowns’ with LRBA reportingBy Miranda Brownlee
- 21 Sep 2017Lost and unclaimed super climbs to $18 billionBy Lara Bullock
- 21 Sep 2017ATO to release further guidance on reservesBy Miranda Brownlee
- view all
- Male SMSF investors ‘bigger risk takers’, says report
Male SMSF members tend to hold a greater share of assets in higher risk investments including domestic shares and property in comparison to ...read more
- Lawyer flags subdivision trap with downsizer contributions
SMSF trustees planning to make downsizer contributions have been warned that if a property has been subject to a partial sale in the 10 yea...read more
- ATO urged to address ‘unknowns’ with LRBA reporting
The ATO has been asked to provide further clarity around the events based reporting requirements for LRBA repayments, with the new requireme...read more
- view all