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ATO sounds warning on SMSFs in pension phase

Katarina Taurian
30 March 2015 — 1 minute read

The ATO is continuing to hone in on SMSFs in pension phase, urging trustees and their practitioners to be aware of the “significant tax consequences” of even simple misunderstandings.

At 30 June 2014, there were one million SMSF members and approximately 39 per cent reported receiving pension payments, worth a total of $19.1 billion, Matthew Bambrick, the ATO's assistant commissioner, SMSF segment, superannuation, told SMSF Adviser.

The ATO expects a further 250,000 members to be eligible for retirement benefits over the next 10 years.


“If you get pensions wrong, there are financial consequences, which we don’t want people to have,” Mr Bambrick said. “As more people move into this phase, we want to make sure they get it right."

For SMSFs in pension phase, the biggest concession is that, if they pay a pension, the income on the assets backing that pension, including capital gains, is exempt current pension income (ECPI).

The super and tax law governing this can be complex, Mr Bambrick said, presenting new challenges for trustees paying account-based pensions.

One of the simplest issues that arises is the required annual minimum pension payment not being made, due mostly to lack of attention on the trustee’s behalf, Mr Bambrick said.

“[This] can have significant tax consequences,” he said. “The law is very clear: where the required annual minimum payment is not made, there is no pension and therefore an SMSF does not have ECPI that year,” he said.

Another simple error the ATO encounters is when a payment is made, but the deadline is missed because a trustee has not factored in bank processing times.

“Those are all things that professionals can assist with,” Mr Bambrick said. “We’re trying to educate trustees and highlight it for the profession in general as something to focus on.”

Mr Bambrick stressed, however, that even an inadvertent error by a professional will not result in special treatment of a trustee by the ATO.

“But of course the trustee might have recourse against the professional for the financial consequence, so that’s just an added thing for the professional to be aware of,” Mr Bambrick said.

ATO sounds warning on SMSFs in pension phase
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