Colonial First State executive manager Craig Day told SMSF Adviser there were some issues and uncertainties surrounding the original TR 93/17 ruling so the ATO came out with the draft ruling and sought industry feedback.
“What [the ATO] wanted to do was take that tax ruling from 1993 and modernise it, so turn it into two separate rulings,” Mr Day said.
“Part one [of the draft ruling] looked at how you go about calculating the fund’s deductions when it’s partially in pension phase, so situations where one member of the fund is in pension phase and another is in an accumulation phase"
The draft ruling was the first attempt by the ATO to look at how deductions get claimed where the fund is both in the pension and the accumulation phases.
The industry feedback, however, indicated it was very difficult to come up with one set of rules that would work for each of the different kinds of funds, he said.
“I think the ATO listened to the feedback, that it was better to go back to the original ruling, for two reasons: one, there wasn’t much wrong with the [the original ruling], there were just a few things that needed to be clarified; and two, it’s probably better to just have one ruling that deals with deductions,” he said.
Therefore, according to Mr Day, the ATO decided not to proceed with a final version of the draft ruling but instead to go back to the 1993 first ruling, adding an addendum to clarify the parts about which the industry required confirmation.
“It’s [now] probably clearer around how you go calculating those unclear situations where an expense can’t be easily attributed to either an accumulation expense or a pension expense,” said Mr Day.
“It also clarifies some issues around the cost of getting in contributions, because that ruling confirms that those costs are also deductible and it confirms the process of how you go about calculating the deduction in relation to that.”
AMP SMSF's head of policy and technical, Peter Burgess, said the most controversial part of the ruling was around the merger of super funds, so the announcement is particularly relevant to APRA funds.
“[This] is most relevant to APRA funds that might be merging [since] as a result of a merger there are superannuation benefits being rolled over by one fund to another. Now under the tax laws, funds are able to include rollovers they receive as part of their assessable income when it comes to proportioning expenses,” Mr Burgess told SMSF Adviser.
“As a result of a merger, you can get situations where a very significant proportion of a fund’s expenses will become deductible or are deductible, and there were questions and discussions raised as part of this ruling as to whether that’s an appropriate outcome in some situations.”