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Shared bank account ruling has complexities

The tax determination (TD) regarding the use of shared bank accounts for SMSFs supporting pension and non-pension members is a positive development, but not without complexities that require careful treatment, according to a specialist service provider for the sector.

Specifically, TD 2014/7, released on 9 April, expressed the view that where an SMSF operates with a bank account with a sub-account included, to allow the funding of both pension and non-pension members’ needs, the shared characteristic of the account will not disqualify the segregated nature of the fund.

It means an SMSF will still be considered a segregated fund even if it only has one bank account to receive contributions and make pension payments.

While that interpretation was a win for self-managed funds, Heffron SMSF Solutions warned trustees and advisers still needed to be wary of the Australian Taxation Office’s (ATO) expectations in regard to the practical operation of the shared accounts.

“The ATO expects the sub-accounts to be maintained on a fairly precise and equitable manner, with each side getting their fair share of interest,” Heffron said.

“The maintenance of sub-accounts will therefore require the accountant to effectively mimic the bank’s process for allocating interest to the account itself.”

It pointed out the process most likely would have to be performed manually as the most widely used SMSF administration platforms in the market did not have the segregation capabilities that could produce that outcome.

But that was not the only area trustees and advisers needed to take into account in relation to the application of TD 2014/7, it said.

“A second issue is that the accountant or trustee will need to keep tabs on the sub-accounts in real time to ensure that each one is always positive,” it said.

“Remember that a key feature of segregated assets is that they cannot exceed the pension liabilities.”

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