Large superannuation funds will not be immune to significant changes in administration procedure as a result of an Australian Taxation Office (ATO) draft ruling on pensions, according to Macquarie Adviser Services executive director David Shirlow.
The draft ruling, TR 2011/D3, is likely to have a noticeable impact due to the segregated nature of the assets of large super funds, with one pool dedicated specifically to servicing members in pension phase and the other set aside for servicing members in accumulation phase.
“So what would happen upon notification of a member’s death the fund would have to retrospectively re-engineer all of its tax accounting,” Shirlow said.
“What the fund would need to do would be identify all of the relevant assessable income and gains derived from the relevant assets from the time of death up until the time the benefits are paid out and apply tax on those amounts.
“And if the assets have been sitting in the segregated pension pool post death, then in theory you would need to retrospectively transfer them to the accumulation asset pool with effect from the date of death and you’d need to apply the relevant cost bases of the assets at the relevant times and so on.”
The amount of effort required to amend the records upon each member’s death would be horrendous and potentially unworkable, he said.
The draft ruling is the first time the ATO has formalised its views in this area and this has presented the industry with its first opportunity to raise its concerns with the government.
“What we need is a practical solution or a legislative change to address the issue,” Shirlow said.
