In August 2013, the Australian Taxation Office (ATO) released draft guidance in TD 2013/D7, indicating that such 'segregated current pension assets' must be held wholly and solely for that purpose and that the test is applied at the level of each single, discrete, indivisible asset at law. Amongst other examples, a bank account was said to be a single chose in action at law.
The ATO view was that a single bank account containing both accumulation and current pension monies would fail the sole purpose test, as it was a single asset only partly held for the required purpose. This was the case even where the super fund kept its own records identifying the notional balance supporting the current pension liabilities.
A number of the ATO’s views were at odds with various industry practices. Following industry submissions, TD 2013/D7 was withdrawn pending further consultation. On 9 April 2014, the ATO issued TD 2014/7, dealing only with the matter of segregated bank accounts.
In TD 2014/7, the ATO now accepts that where a bank account has 'sub-accounts', then the sub-account maintained for the sole purpose test may be a segregated current pension asset, even if other sub-accounts are not held for that purpose. The ATO also accepts that this view can apply not only to sub-accounts maintained formally by the bank but also to informal, or notional, sub-accounts where proper accounting records are maintained by the super fund.
Super funds applying the segregation approach should have close regard to the ATO’s expectations to ensure exempt status of relevant bank accounts is maintained.