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SMSFs cautioned on ‘brutal’ trap with pension minimum

SMSFs cautioned on ‘brutal’ trap with pension minimum

Miranda Brownlee
18 September 2017 — 1 minute read

Comments in the explanatory memorandum for the transfer balance cap could result in SMSF trustees losing out on the pension exemption for more than one year where they fail to meet the pension minimum, warns an industry lawyer.

Speaking in a webinar, DBA Lawyers special counsel Bryce Figot said SMSF practitioners are well aware of the fact that where the minimum payments for an account-based pension are not satisfied during a financial year, it will be treated as though the client didn’t have that pension in that particular year and they will miss out on the pension exemption.

Mr Figot said SMSF practitioners and trustees have accepted this and up until recently the pension would automatically start again the next financial year.


However, a comment from the Explanatory Memorandum, Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 states that “for the superannuation interest to once again be eligible for the earnings tax exemption it must be commuted in full and a new superannuation income stream that complies with the standards started”.

“So this is actually a double whammy because if the pension fails to meet the minimum in a financial year, odds are you’re not going to know about that on 1 July of the next financial year. You’re probably not even going to know about it on 1 August,” said Mr Figot.

The SMSF practitioner and client, he said, may not realise until they’re through most of the next financial year and will then have to commute and start a new pension in full.

“You might actually miss out on the tax exemption for year number one, where you failed to satisfy the minimum, and also for year number two,” said Mr Figot.

“So this comment in the explanatory memorandum is a trap and it’s more brutal this financial year than it was in previous financial years.”

The practical implications of this Mr Figot said are that SMSF practitioners will need to pay even closer attention to this with clients to ensure they are paying pension minimums.



SMSFs cautioned on ‘brutal’ trap with pension minimum
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