ATO provides further clarification on SMSF pensions
Following some industry confusion, the ATO has provided clarity on the steps an SMSF trustee must undertake when they have failed to meet the minimum payment for a pension.
Speaking at a seminar last week, DBA Lawyers director Daniel Butler said that where a super fund has failed the minimum pension payment, the ATO says the pension has then ceased, the exemptions are lost for the entire financial year and the trustee must begin a brand new pension.
He said it had been unclear, however, as to whether the trustee can use the same documents or whether they “have to roll [the pension] back and start afresh”.
This was not even considered by the ATO when it first issued rulings in the area, according to Mr Butler.
“We now have a response from the ATO which does provide certainty,” he said.
“The ATO say you must do all the documents again. You’ve got to do all the re-calculation, the market valuations and document all this from a rollback position because technically, when you failed to pay the minimum, it was a rollback from the start of the financial year.”
Mr Butler said that where regulations such as meeting the minimum payment for the pension were met in the following income year, “a new pension would be taken to have commenced”.
“At a minimum, the trustee would be required to have new documents evidencing the re-valuation at market value and the re-calculation of the minimum amount,” he said.
“Additionally, you’d need to work out the tax-free and taxable on the pension.”
This guidance from the ATO, Mr Butler said, is unlikely to be the news the industry was expecting.
“The ATO is basically saying, 'Yes, you’ve got to go through all that documentation process again if you fail the minimum', so it’s not just failing the minimum and wiping out your pension exemption, it’s also the cost of all those documents again,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.