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ATO flags tax return inclusions for legacy pensions

ATO
By Miranda Brownlee
18 July 2019 — 1 minute read

The ATO has reminded SMSF members who receive capped defined benefit income streams on what they need to include when preparing their individual tax return.

In an online update, the ATO said if a member is receiving income from a capped defined benefit income stream, then they may have additional tax liabilities and may need to calculate their entitlement to the 10 per cent tax offset.

“This applies if the income from all their capped defined benefit income streams exceeds their defined benefit income cap,” the ATO said.

If an SMSF pays a capped defined benefit income stream to a member with a defined benefit income cap, a pension payment summary must be provided, which was due on 14 July 2019.

“You must also lodge a PAYG withholding payment summary annual report with us by 14 August 2019. This is required even if the amount you withhold from the pension the SMSF pays to them is nil.”

A member will have a defined benefit income cap if they have income from a capped defined benefit income stream and are 60 years or older or under 60 and receiving a death benefit income stream from a person who died aged 60 or over.

“For most people, the defined benefit income cap will be $100,000. It may be less in some circumstances, including if they turned 60 during the year or were over 60 and started receiving income from a capped defined benefit income stream for the first time partway through the year,” the ATO explained.

When preparing the individual tax return of the member, the ATO said SMSF professionals will need to consider all the income the member received from the capped defined benefit income streams.

At label 7M, the ATO said they will need to include half of the income from the tax-free component and taxed elements of all the member’s capped defined benefit income streams which exceeds their defined benefit cap. Any untaxed element should be included at label 7N.

They will also need to calculate the member’s entitlement to the 10 per cent tax offset and include it at label T2, the ATO added. The amount may be nil, it said.

Once a member has all their pension payment summaries, the ATO said its defined benefit income cap tool can be used to calculate their defined benefit income cap, any income which needs to be included in assessable income and reported at label 7M or 7N and their entitlement to the 10 per cent tax offset.

“If [a] member lodges their return using myTax, we will prefill their return with the information reported to us and myTax will provide a two-click solution to ensure they correctly include this pension income in their return,” it said.

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