Tim Miller, head of education and technical for Smarter SMSF, said on a recent webinar for SuperGuardian that there has been a long-standing belief that an individual trustee only has the power to pay out a pension income stream.
“Once we hit retirement, 65 years, have a medical condition, permanent incapacity or death benefits, then we can either pay out a benefit as a lump sum or as an income stream or as a combination of both,” Miller said.
“The way it is done has to do with the trust deed, but one of the things that has always been an area of confusion is whether an individual trustee has the power to pay out a lump sum benefit.”
Miller said the ATO has always been clear that they can, but it must be done with the premise in mind that the primary purpose of the fund is for the provision of a pension.
“The objective, and the purpose, of the fund has got to be to pay the pension, but there is no restriction on paying lump sums unless your deed puts a restriction in place.”
“I’ve seen, historically, deeds in that situation, but most deeds now provide for both. How you pay a benefit is then quite specific.”
When it comes to lump sums versus pensions and a lump sum benefit, they are generally paid out in cash, but they can also be paid out as an in-specie payment.
“So whether it’s a benefit to the member or whether it’s a benefit to beneficiaries following the death of a member, you can actually transfer the assets of the fund out as that benefit payment,” Miller said.
“Of course, market valuation is critical there, ensuring that the market valuation is representative of the commercial transaction that should occur concerning that asset. Listed securities are pretty simple with regard to that, obtaining what the valuation is at the date of the payment from a property point of view, and ultimately getting a valuation undertaken from a fund point of view.”
He warned that any process has to be considered from an arm’s-length transaction point, and it must be ensured that the fund is always dealing on an arm’s-length basis.
“However, you’ve got to fairly and accurately represent your capital gains tax position for calculating CGT. If you’re accessing money before the fund is in pension phase, you want to make sure that you are appropriately recording for CGT purposes.”
Miller gave an example of Claire, who has $50,000 and wants to transfer the ABC shares out of a super fund.
“She can actually do that from a valuation point of view and we do see this situation arising a bit within the industry,” he said.
“Often the scenario of doing in-specie lump sums versus selling down the asset and then re-entering the marketplace is a bit of a much-of-a-much situation, because ultimately you are going to reset the CGT position with the exception of an event like a relationship breakdown, where you’re going to move the assets and the cost base will move with it.”
He added that in every other circumstance, the cost base for CGT purposes will be reset.
“You have to ask whether an in-specie transfer provides any real benefit. Potentially, the benefit associated with it is brokerage from an investment point of view.”
“But then whoever’s undertaking the work from an in-specie perspective, they might have a fee associated with that. Weighing those sorts of things up will determine whether or not to pay the benefit as an in-specie or a cash payment.”
