In a submission in collaboration with the joint bodies, the SMSFA said TR 2013/5 lacks clear legislative backing, and its reliance on regulation 1.06(9A) appears to be an overreach, adding unnecessary complexity without providing practical benefit.
The addendum to TR2013/5 deals with when a superannuation income stream commences and ceases.
“With around 35 per cent of the current SMSF population in retirement phase and a further 10 per cent transitioning to retirement, the number of taxpayers affected by this Ruling is significant,” the submission stated.
The joint bodies said that while it welcomed amendments made to incorporate legislative amendments flowing from the introduction of the transfer balance cap regime, it did not believe it should be the responsibility of taxpayers to bear the consequences of the commissioner’s delays in updating guidance to reflect new laws and practices.
“At a minimum, the commissioner needs to ensure that updates to TR 2013/5 do not apply retrospectively to disadvantage recipients of account-based income streams,” it said.
“This situation is further exacerbated by the lack of consultation during the update process which saw changes to the Ruling, particularly in relation to minimum pension underpayments, bypass the consultation on draft TR 2013/5DC11.”
The submission continued that there is a particular concern with the change in the ATO’s view that where a pension fails to comply with the pension standards, an account-based income stream ceases for income tax purposes only, but not necessarily for superannuation purposes.
“TR 2013/5 is a long-standing public ruling, originally published in July 2013 and applying from 1 July 2007. It has shaped industry practice over many years, especially in relation to treating a superannuation income stream as having commenced or ceased for both superannuation and tax purposes,” it said.
“This practice has gone unchallenged by the ATO despite the commissioner being aware of the practice and begs the question why a change in the legal interpretation is necessary now.”
Furthermore, the submission said the latest update may create additional administrative steps that under the previous version of the ruling were considered to have already occurred.
“These new requirements appear to add unnecessary complexity without providing any practical benefit, as they lead to the same outcome.”
“Ultimately, a new retirement phase income stream must commence, and that income stream needs to meet the pension standards in the SIS Regulations to ensure that the transfer balance credit and retirement phase recipient rules operate as intended.
“While the focus of our feedback is on the latest update to TR 2013/5, we believe it is very important to address a broader issue stemming from the original ruling.”
The SMSFA said that in its view, a pension is a contractual obligation between a trustee and a member. If minimum payments are missed, the pension does not cease – rather, the trustee is in breach of its contractual obligation, with any unpaid amounts remaining a debt owed to the member.
“This interpretation aligns with contract law, and if this fundamental issue were addressed, many of the concerns in this submission would be resolved. Therefore, we urge the ATO to reconsider its stance on this matter.”
This is something I’ve said for many years: a pension is a contract between trustee and member. If the trustee fails to fulfill a fundamental term (payment), then the member has all of the usual rights which a party to a contract has. They can either accept it as a repudiation of the contract and terminate it for breach, they can insist upon specific performance (viz. give me the money you were supposed to), or they can overlook the breach, but insist upon the trustee meeting its obligations in future.
All of these rights exist at law, regardless of what the ATO puts in a ruling, and independent of the ATO’s (probably correct) interpretation of ITAA97’s impact of the fund’s ECPI claim.