A leading superannuation lawyer has warned financial planners to tread warily when it comes to creating strategies for clients that rely on other people’s private binding tax rulings.
A director of DBA Lawyers, Bryce Figot, says a strategy currently generating a high level of interest among financial planners involves someone aged under 60 receiving a transition-to-retirement (TTR) income stream.
Figot says these clients can utilise regulation 995-1.03 of the Income Tax Assessment Regulations 1997 and elect for a pension payment to be treated as a lump sum.
“The pension payment, rather than being taxed like normal, becomes tax-free under the low-rate cap amount,” Figot says.
But he says caution should be exercised by advisers before “applying this strategy for their clients willy-nilly”.
“My view is that although it can work, there is more to the picture,” he says.
“In short, if you want to implement this, both the individual and the SMSF [self-managed super fund] should first apply for private binding rulings.”
In an article to appear in the February edition of Professional Planner, Figot will expand upon his reasoning for this view.
“Although there has been a private binding ruling stating that the strategy works, there are other ATO materials stating that this strategy does not work,” he says.
“Private binding rulings are only binding for the applicant, and technically provide no comfort for the rest of the industry.
“I have concerns regarding other aspects, such as this strategy’s impact on the SMSF’s eligibility for the pension exemption, satisfying minimum pension requirements and part IVA.”
Figot says financial planners can work with law firms to prepare and lodge private binding rulings on behalf of clients, addressing the key issues.
