The constant demand by SMSF trustees for lower administration costs and the shortcuts used by their advisers to achieve this can have significant tax consequences, including on pension entitlements, an industry law firm has warned.
Townsend Lawyers principal Peter Townsend said his legal firm continues to be surprised by the poor quality of documentation relating to SMSF pensions, including no or defective pension applications and agreements, no or defective trustee minutes, and trust deeds that fail to empower the trustee to pay account-based or transition to retirement pensions.
Mr Townsend said one of the common problems among practitioners and trustees is the mistaken belief the creation of pension documentation is just ‘form-filling’, which can be done by anyone and should cost nothing.
This dismissive attitude, he said, can “land all concerned in plenty of hot water”.
“Tax Office Ruing TR 2013/5 makes clear that pension entitlements must be locked in from a legal perspective. If the pension documents are not correct and in place the pension may not have been effectively created, in which case the fund may still be in accumulation phase with the accompanying tax consequences,” said Mr Townsend.
Without documents that adequately evidence the terms and conditions of the income stream, the agreement between trustee and member and the fact the agreement complies with the governing rules of the fund and the SIS regulations, Mr Townsend said the pension cannot be proven to have commenced.
“It is advisable for pension documents to be prepared before the pension commences, with the opening balance confirmed later if necessary once the fund’s accounts have been finalised for the relevant period,” he said.
“If the pension has been paid for a number of years the commissioner might have a field day with the additional tax payable by both the fund and the member.”
Another common error, he said, is not bothering to check what the trust deed says.
“As with almost every aspect of the administration of an SMSF, it is crucial to check the trust deed and then follow it to the letter as comprehensively as possible,” he said.
“If there are problems with the contents of the trust deed it may be possible to amend the deed or governing rules.”
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 17 Aug 2017Industry questions ATO’s capacity for new reportingBy Miranda Brownlee
- 17 Aug 2017Qld succession law changes tipped to impact SMSFsBy Miranda Brownlee
- 16 Aug 2017Contribution limits restricting future balances, warns mid-tierBy Staff Reporter
- 16 Aug 2017SMSF firms underprepared for events-based reportingBy Miranda Brownlee
- 15 Aug 2017SMSF auditor disqualified for misconductBy Staff Reporter
- 15 Aug 2017Class gains market share in financial year resultsBy Staff Reporter
- view all
- Industry questions ATO’s capacity for new reporting
With events-based reporting set to generate huge amounts of data, concerns have been raised about whether the ATO’s systems will be able t...read more
- Contribution limits restricting future balances, warns mid-tier
Clients hoping to accumulate a superannuation balance of $1.6 million by age 65 will need to start taking full advantage of concessional con...read more
- SMSF firms underprepared for events-based reporting
A straw poll has revealed that the majority of SMSF firms currently feel their firm is not equipped to deal with the proposed events-based r...read more
- view all