When is an SMSF bank account qualify a "Segregated Current Pension Asset"?

News | Mehak Gaba | Released: 08/04/2026 | Read: 5 Mins

Taxation Determination TD 2014/7 and the TD 2014/7A1 Addendum set out the circumstances in which a bank account of a complying superannuation fund is treated as a "segregated current pension asset" under Section 295-385 of the Income Tax Assessment Act 1997. The determination adopts a practical approach and provides guidance through various examples, including the use of separate bank accounts, sub-accounts, and even informal sub-accounts maintained through proper records by the trustee.

In this newsletter, we explore key examples from TD 2014/7 to demonstrate when a bank account will qualify, or continue to qualify, as a segregated current pension asset.

💡Example 1: Segregated bank account & general bank account maintained.

• The example deals with an SMSF that has a bank account and a term deposit that is maintained solely to support a pension, with $100,000 in the bank and $200,000 in a term deposit for retired members.
• The fund also maintains a separate bank account of $250,000 for a member who is still in the accumulation phase.
• In addition, the SMSF holds property and shares, with proper records clearly showing the purpose of each asset.
• As the pension funds are kept separate and used only for pensions, the $300,000 is treated as segregated current pension assets, making the income tax-free.

Example 2: Sub-accounts within pooled bank account

• The example deals with a fund that uses one common (pooled) bank account for all members.
• Each member is given a separate sub-account, showing their individual share of the total money.
• The system clearly separates: Members in pension phase and Members in accumulation phase.

• For pension members, their sub-account is used only to pay their pension, and income is calculated separately.
• As a result, each pension member’s sub-account is treated as a segregated current pension asset (tax-free).

Example 3: Change from accumulation phase to benefit phase 

• The SMSF has one bank account of $750,000, shared by two members:

• • Member X → $350,000
  • Member Y → $400,000
• Both were initially in accumulation phase.
• Member X retires and starts a pension.
• Even though there are no formal sub-accounts, the trustee keeps clear records to track that $350,000 belongs to the pension.
• As a result, this $350,000 is treated as a segregated current pension asset (tax-free).

Example 4: Dividend payment to segregated bank account.

• The SMSF has two bank accounts:
  • Bank Account 1 → for pension (tax-free).
  • Bank Account 2 → for other purposes
• The fund owns 10,000 shares, but only 3,000 shares relate to pension.
• The company pays a $10,000 dividend into the pension bank account (by mistake, full amount).
• The trustee quickly fixes it by transferring:
  • $7,000 (non-pension portion) +$7 interest relates to the general bank account and is not tax free.

💡Example 5: Error in payment made to a segregated bank account

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💡 Example 6: Sub-account maintained by Accounting Software

In this situation, the sub-account attributed to a member in pension phase is treated as a segregated current pension asset.

The benefits of segregated funds

• Where such segregation exists (like separate accounts, sub-accounts, or properly tracked portions), the income from those assets is fully exempt (ECPI).
• In these cases, the fund is not required to obtain an actuarial certificate, as the exempt income is calculated using the segregated method.
• However, if the fund cannot clearly segregate assets, or operates with mixed (pooled) assets supporting both pension and accumulation, the fund must apply the proportionate method, which requires an actuarial certificate.

When is an Acturial Certificate required or when is it not?

✅ When your fund has mix of pension and accumulation accounts.

✅ If assets are not clearly separated or partly segregated, the fund automatically falls under the "Unsegregated Pension Assets" and actuarial certificate is required for that period.

✅ When fund contain a defined benefit pension at any point during the financial year. 

❌ Fund is 100% in pension phase or 100% accumlation phase for the entire year.

❌ Fund uses only segregated pension assets (and is eligible).

❌ No Fund has member total superannuation balance exceeding $1.6 million and also holds a pension, the fund is not permitted to use the segregation method and forced to use the "unsegegrated method".

Our Recommendations

We would suggest that running sub-accounts for segregated pension accounts would require the SMSF to be running on specialist SMSF software to enable the fund to create and manage such an arrangement. It could certainty be calculated manually (e.g. Excel spreadsheet) but may be more difficult and time-consuming.

The key point is that the regulators are imposing tighter restrictions on segregated funds, making them more difficult to operate and narrowing the situations where they are warranted.

Visit www.trustdeed.com.au for more details or call us on(02) 9684 4199

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