Some manipulation with tax outcomes could appear due to a lack of guidance around how distributions from managed investments and unlisted unit trusts should be treated under the new exempt current pension income rules for SMSFs, according to a mid-tier firm.
Hayes Knight director of SMSF services Ray Itaoui said that before the changes to exempt current pension income (ECPI) were introduced, when an SMSF received tax statements for managed investments, unlisted unit trusts or private unit trusts, the practitioner would record all the components from these statements at 30 June.
“[Due to] the change to the interpretation of ECPI, however, a more accurate representation is to actually have the components for that tax statement distributed throughout the year, relevant to each distribution that was received throughout that year,” the director explained.
“However, when these managed funds provide tax statements, they don’t necessarily give a breakdown as to what the components of each distribution were throughout the year.”
Many of these managed funds only provide one figure, the director said, which is an accumulation of all the components of all the distributions received throughout the year.
An SMSF, however, has to determine whether an amount relates to the 30 June distribution or whether the distribution relates to the entire year.
“It creates some complexity for the ATO and auditors in terms of working out if the distribution of those components is being applied correctly. It also creates opportunities to generate more favourable tax outcomes for clients where those components are placed in a period where it creates a better outcome,” the director explained.
“If you have a fund that has a large number of unlisted unit trusts and managed investments and receives a lot of tax statements at the end of the year, it can be quite cumbersome for accountants to try and break up those components to different distributions throughout the year, and you’ll probably see a lot of accountants continuing to put that number in at 30 June, as was always done in the past.”
The SMSF industry needs further guidance in this area to ensure there is a consistent application of these tax statements for SMSFs, the director said.
“It’s something that we’re trying to work out how we approach it at the moment. I think while there isn’t any specific guidelines from the ATO, a common-sense approach works best. It’ll be interesting to see if the ATO raises any concerns around people trying to manipulate the system to create better tax outcomes,” said Mr Itaoui.
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