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.”
I think the ATO has made it clear that the allocation should be decided before the money is withdrawn, regardless of the account it comes from. Having said that, the ATO has no idea how the real world works. Clients withdraw whatever they want and don’t give it a second thought. It is left to the accountant to determine how to allocate the payments when the client gets around to sending in their work the following year. With luck, they will have discussed it before taking money out, and have appropriate minutes in place, but that doesn’t always happen.
The matter is more complicated when administrators using the the latest “does everything for you software” auto allocate benefit payments to pensions. In the majority of instances the processing rules or AI will have been set and remained unchanged post the pension rate reduction and or the ATO’s announced position.
Administrators may wish to change the allocations. But can they. What will the auditors position on the re-allocations be? Of course there will no audit issues with in-house auditors