Peter Crump, senior superannuation consultant for BDO, said that as of 1 July 2025, the changes to Tax Ruling 2013/5 begin, which change the tax rules around when a pension commences and ceases.
“TR 2013/5 is the taxation ruling that details when a pension starts and finishes and the way it worked before the recent changes was pretty good. It provided a great deal of flexibility and the adverse consequences weren’t significant,” Crump said on a recent ASF Audits podcast.
“Then, of course, we had this change. The ATO decided, in its wisdom, that it would revisit the process because it thought it had been too generous in terms of when the pension fails and the outcome now is much more draconian.”
Crump continued that the first issue to consider in light of the changes is that if a pension is treated as having failed at the start of the financial year, as opposed to the end of the financial year, the pension accounts stop at the start of the financial year. This means there will be an accumulation account floating around in the superannuation fund that is not a separate interest anymore.
“If you have another accumulation account beside this failed pension, then, from a tax perspective, those two tax components are washed together and mess up any wonderful tax planning that has been done,” he said.
“There is also a transfer balance cap issue with transfer balance reporting because if the pension fails at the start of the year, you need to apply the appropriate credit. The pension can only restart when the member indicates they have made a mistake on the minimum [pension drawdown] and that generally doesn’t occur until partway through the subsequent financial year.”
He said this may be anywhere from 13 to 22 months between the pension failing and the pension resuming, which can have consequences for the tax components internally.
“If investment markets rise during that time, that means that the amount that you need to or want to use to start the pension may not be fully available if you had played with maximising, or optimising, the use of the transfer balance cap,” he said.
“It means you may have a portion of that account balance that’s locked out of pension because markets have risen during that time. Therefore you can’t put yourself in the same position that you would have been in if that pension had been in place all the way through, and those wonderful investment earnings were all inside the pension account.”
