SMSFs warned on complications with asset test exemption

“The exemption is from the application of the Centrelink assets test. If the pension has a 100 per cent ATE status, it has a zero value for asset test purposes. If the pension has a 50 per cent ATE status, then only half of the asset value is counted for asset test purposes,” Townsends explained in an online article.

ATE status ceased on 19 September 2007, and any pension commenced after this date is not entitled to ATE status, it noted.

“However, in special and limited circumstances, a pension which is commenced on or after 20 September 2007 can inherit ATE status of an earlier pension which commenced before 20 September 2007,” the law firm said.

“The retention of ATE status into the new pension will only apply where the circumstances satisfy the relevant conditions which are set out as principles issued by the relevant department — referred to as the retention principles.”

In order to retain ATE status, Townsends said there are strict conditions that must be met.

“If not, then the new pension will not inherit any ATE status. This was the situation of Mr Allan Meyers who unsuccessfully argued that a pension which commenced after 20 September 2007 should have an inherited 100 per cent ATE status,” it said.

“Mr Meyers commenced a defined benefit pension on 1 July 2004 (2004 pension) from his SMSF. At the time, the SIS Regulations permitted such pensions to be paid by SMSFs. As this pension was a complying lifetime pension, it was eligible for 100 per cent ATE status. On 1 July 2008, Mr Meyers commuted the 2004 pension and transferred the entire commutation payment into commencing a market-linked pension on 1 July 2008.”

In July 2009, Mr Meyers decided to transfer his entire pension to a public offer super fund. He then commenced on 23 July 2009 a market-linked pension from that public offer fund.

“Mr Meyers argued that his 2009 pension had inherited the 100 per cent ATE status from the 2004 pension. Unfortunately, Centrelink took a different view and, after appeal to the Administrative Appeals Tribunal, Centrelink was right. The case is reported as Meyers and Secretary, Department of Social Services [2019] AATA 788,” it said.

“The critical issue was while the 2004 pension was 100 per cent ATE, the 2008 pension did not inherit the ATE status of the 2004 pension, and so there was no ATE status to inherit by the 2009 pension.”

The retention principles applicable at the relevant time, Townsends said, did not address the situation where a complying lifetime pension was converted into market-linked pension. 

“Consequently, the 2008 pension did not inherit the 100 per cent ATE status and therefore could not pass on that status to the 2009 pension,” it said.

“Had the conversion of the complying lifetime pension occurred before 20 September 2007, then a different outcome would have occurred. In this situation, the market-linked pension would have been entitled to 50 per cent ATE status, as it commenced before 20 September 2007, and therefore could have passed on its status to the 2009 pension as the retention principles address the situation of the ATE status of a market-linked pension transferring to another market-linked pension.”

Under the 2005 retention principles, ATE status cannot be transferred from a complying lifetime pension to a market-linked pension, the law firm noted.