Graeme Colley, SPAA Director - Educational and Professional Standards, who will address this issue at the organisation's technical conference in Sydney on July 24, believes it is vital the ATO finalises its draft ruling - sent out for public comment last year - as it has the potential to impact significantly on members' benefits.

"Certainly there is the potential for significant additional income tax to be paid if the trustees get it wrong," he says.

"The link between the income tax law and the SIS legislation has always technically been a tenuous one as the fit has some uneasy aspects at best, and the delay in finalising draft ruling (TR 2011/D3) has not helped matters."

The ruling revolves around what constitutes the provision of a pension in a fund and whether the income of the fund supporting that pension is taxed at 15% or tax free.

Colley says there is also uncertainty around the date from which the ruling would take effect, with the draft ruling stipulating 1 July 2007.

"Backdating to 1 July 2007 may be fine for funds that have happened to have done it right, according to the Commissioner's ruling," he says.

"However, for those who have not met the requirements of the ruling due to other quite valid interpretations of the law, the result could be a very expensive exercise.

"Larger public offer funds that are in this boat may end up with a larger tax bill to pay. They may need to amend their systems and reduce the balances of members to pay the additional tax.

"This may impact unfairly on members who are new to the fund or those who have been in pension phase for a shorter period than the backdating requires."