Pension payment guidance causing confusion for mixed-account SMSFs
While the ATO has been clear that pension payments cannot be reclassified in response to reduced pension minimums, it is less unclear what SMSF clients are able to do where they have both accumulation and pension accounts in the one fund, says a technical expert.
SMSF Association deputy chief executive Peter Burgess said following the reduction to minimum pension amounts for most pensions announced in March, some SMSF clients have inquired whether they’re able to reclassify payments made before March as lump-sum commutations.
Speaking at the Tax Institute National Superannuation Conference this year, Mr Burgess said the ATO has been very clear that you cannot reclassify payments that have previously been paid as a pension.
“[This] also extends to situations where clients may have made an election at the beginning of the financial year that they wanted any payments in excess of the minimum to be treated as a commutation,” Mr Burgess stated.
“So, even if the client had put one of those elections in place at 1 July 2019, they can’t now go back and reclassify amounts that have been paid as a pension as a lump-sum commutation.”
However, there are other situations, he explained, where the regulator’s view in regard to benefit payments made before the reduction in pension minimums was announced is less clear.
“Situations have been raised with us where the client might have an accumulation account and a pension account in the one fund. It’s quite common in those situations that they don’t make a decision till the end of the year as to what amounts have come out of the accumulation account and what amounts have been taken from the pension account,” he explained.
“Now in those situations, I think it’s arguable that there hasn’t been a reclassification of pension payments, although the ATO may see that differently.”
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.