PCG 2018/2: Propagation arrangements adopted by registrable superannuation entities
Document type: Final PCG
Status: Current
Date of issue: 30 May 2018
Date of effect: 1 July 2018

1. This Guideline sets out the ATO's compliance approach to the use of propagation in selecting assets for disposal.

Scope: 3. This Guideline applies to registrable superannuation entities (RSEs) that contract with custodians to provide custodial and investment administration services for the RSE's assets. 4. An RSE is a regulated superannuation fund, an approved deposit fund or a pooled superannuation trust, but does not include a self-managed superannuation fund.

5. The Commissioner's views on asset identification principles and record keeping methodologies are contained in CGT Determination TD 33 Capital Gains: How do you identify individual shares within a holding of identical shares? , Taxation Ruling TR 96/4 Income tax: valuing shares acquired as revenue assets and Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles . 6. TD 33 confirms that, for capital gains tax purposes, where a disposal occurs: 7. TR 96/4 provides: 8. TR 96/7 sets out the Commissioner's view on records sufficiently maintained to record and explain all transactions in accordance with section 262A of the Income Tax Assessment Act 1936 . What is propagation? 9. Propagation is a term adopted by custodians to describe a tax parcel selection process. Under propagation, the tax parcel selection methodology agreed with the RSE is applied across the RSE's asset class level holdings instead of being confined to the individual fund manager level. 10. When assets are disposed of, the relevant parcel is selected from the propagated portfolio for each transaction, based on the parcel selection methodology agreed with the RSE.

Intro: 11. This section explains the Commissioner's compliance approach to propagation arrangements that satisfy the asset identification principles and record keeping methodologies described in TD 33, TR 96/4 and TR 96/7. | Where propagation is low risk: 12. The Commissioner will generally not apply compliance resources to propagation arrangements when all of the following circumstances are satisfied: 13. The Commissioner may devote limited compliance resources to confirm that particular propagation arrangements satisfy these parameters. | Where propagation is not low risk: 14. The Commissioner considers that a propagation arrangement is not low risk where it does not satisfy each of subparagraphs 12(a) to 12(g) of this Guideline. 15. Furthermore, propagation arrangements the Commissioner considers are not low risk include those arrangements where: 16. Where a particular propagation arrangement is not low risk, the Commissioner may apply compliance resources to examine the arrangement in more detail. | The application of the general anti-avoidance provisions: 17. The general anti-avoidance provisions may apply to a propagation arrangement adopted by an RSE, for example, where it is part of a scheme that exhibits the following type of features: 18. In these circumstances, the Commissioner may conclude that the scheme was entered into, and carried out, to enable the RSE to make a choice to segregate and then unwind the segregation of its current pension asset pool, resulting in the obtaining of a tax benefit in the form of omitted assessable income.



Propagation arrangements adopted by registrable superannuation entities: This Practical Compliance Guideline sets out a practical administration approach to assist taxpayers in complying with relevant tax laws. Provided you follow this Guideline in good faith, the Commissioner will administer the law in accordance with this approach.

If you are looking for PCG 2018/D2 Diverted Profits Tax, you may open it using PCG 2018/D2 Diverted Profits Tax . | What this Guideline is about | Who does this Guideline apply to | Date of effect: 2. This Guideline will apply from 1 July 2018. | Commissioner of Taxation 30 May 2018 | Previously issued in draft format as PCG 2017/D16 | Related Rulings/Determinations: TD 33 TR 96/4 TR 96/7

Legislative references: ITAA 1936 ITAA 1936 262A ITAA 1997 ITAA 1997 295-385 ITAA 1997 295-390 SISA 1993 SISA 1993 69A