Minimum Annual Pension Payment Requirements: To pay or not to pay — that is the question
Changes to tax law mean that for an SMSF to claim the current pension If your fund fails to meet its minimum pension payment due to factors beyond your. But this tax-free status is at risk when minimum pension payment rules are breached. looks kindly minimum on a fund's failure to meet the minimum pension payment Ultimately, it is far easier to make sure your SMSF pension is being paid What should I do if I short pay my annual pension payment?. Background: The reduction in minimum annual pension payments in earlier but to withdraw at least the minimum pension amounts in order to meet living . Normally, if an SMSF fails this solvency requirement, the income.
Even so, there has been some relief for SMSFs struggling to make minimum annual pension payments. The SIS Regulations have been amended to halve the minimum payment amounts for account-based pensions in the and financial years. Why is this issue of particular relevance at present?
- ATO warns on minimum pension payments
- Minimum Annual Pension Payment Requirements: To pay or not to pay — that is the question
Not surprisingly, ensuring that minimum annual pension payments are being made is of particular importance given the impact the global financial crisis and economic downturn have had on the balances of many SMSFs' pension accounts.
What is the 'current pension income deduction' SMSFs may claim as a deduction all ordinary and statutory income derived from assets set aside to pay a pension . To claim this deduction, the pension must comply with all the regulatory requirements for pensions under regulation 1. For present purposes, this includes the requirement that the annual minimum pension payment be made in the relevant year.
Although the ATO's initial view is that SMSFs cannot act in this way, it is currently considering the implications of failing to make minimum annual pension payments in the context of the current pension income deduction under the ITAA. At least for the moment, SMSF trustee s wishing to claim the current pension income deduction must ensure that all pension amounts are paid in the year in which they are due. To gain the current pension income deduction under the ITAA, the pension must comply with all requirements in r.
The trustee must ensure that each pension meets the minimum pension payment requirements.
ATO relief on minimum pension payments - Superfund Partners - SMSF Specialists
End of example Example - One member receives two pensions and the trustee does not satisfy the minimum pension payment for one pension but does for the other. Member A is currently in receipt of two pensions from the fund. It is irrelevant that the combined income received by Member A from the two pensions equates to an amount greater than the combined minimum pension payments required.
End of example What does the Commissioner consider to be a 'small' underpayment? The Commissioner considers a small underpayment to be one that does not exceed one-twelfth of the minimum pension payment in the relevant income year. For super income streams that commence part way through the year this amount is taken to be one-twelfth of the minimum annual pension payment amount and not the pro-rated amount.
Where the underpayment exceeds one-twelfth of the minimum pension payment the trustee will need to provide details of the circumstances that affected their ability to make the minimum pension payment.
Each case will be considered separately on its own merits.
SMSFs: Minimum pension payment requirements – frequently asked questions
What does the Commissioner consider to be 'as soon as practicable'? Under what circumstance would we allow a trustee to apply the exception? We will allow the trustee to apply the exception if all of the following apply: In considering whether the exception would apply, the trustee would need to assess if all of the following apply: Based on satisfying all of the above conditions, we will allow the trustee to apply the exception. Therefore, notwithstanding the fund's failure to meet its obligations under the super law: In considering whether the trustee can self-assess and apply the exception, the following conditions must be satisfied: Based on satisfying all of the above conditions, we will allow the trustee to self-assess their entitlement to the exception to treat the SMSF as having continuously paid a super income stream.
Example - The trustee incorrectly calculates the minimum pension requirement. The trustee makes an honest administrative error when calculating the minimum pension payment in the relevant income year.
ATO warns on minimum pension payments | Shed Connect
The trustee needs to assess if all the following apply: End of example Example - Trustee had to travel overseas on short notice to attend to a crisis related to their business and does not make the June monthly pension payment until the following income year. In considering whether we would exercise the exception ,the following must be taken into account: Based on satisfying all of the above conditions, we will allow the trustee to apply the exception to treat the SMSF as having continuously paid a super income stream.
End of example In all other cases the trustee will need to write in and outline why they did not meet the minimum pension payment requirements. We will consider the fund's eligibility to the exception and, if applicable, whether the trustee can continue to claim ECPI. What if the trustee fails to make the minimum annual pension payment for multiple years? Where a fund has previously applied the exception, the trustee cannot meet the conditions to apply the exception again. The trustee would need to write in and we would need to consider the circumstances of the individual case to determine whether the exception can be applied.
When should a trustee write in and request the Commissioner consider the application of the exception? A trustee will need to write in and outline why they did not meet the minimum pension payment requirements for us to consider their entitlement to the exception, where either — they have: When requesting the Commissioner consider an application of the exception, a trustee will need to provide details of the circumstances that affected their ability to make the minimum pension payment.
Each case will be considered on its merits. To ensure a fair and reasonable outcome is achieved in each case, the decision will be made in accordance with the statements and principles set out in the Taxpayers' chartercompliance modeland the good decision-making model which requires that the decision be legal, ethical, overt, sensible, timely and in accordance with the principles of natural justice.
Example - A trustee is overseas and does not make the annual pension payment until the following income year. We would take into account that this is not a small underpayment as it exceeds one-twelfth of the minimum annual pension payment. This would not ordinarily be a case where the Commissioner would treat the pension as continuing and a trustee would need to demonstrate that matters outside of their control affected their ability to meet the minimum pension requirements.
Only then can we consider whether the other conditions relevant to the exception can apply. Each case would be considered on its own merits. End of example Example - Minimum pension payment requirements were not met due to factors outside of the trustee's control. Both members of a two member SMSF are injured in a car accident just before the final pension payment for the relevant year.
The trustees were both incapacitated and spent extended periods of time in hospital recovering from their injuries. The payment is made in August of the following income year.
ATO relief on minimum pension payments
In this case, we would need to consider all the following in determining whether or not to allow the exception to allow the pension to continue: End of example Example - The trustee makes a payment by cheque that is dishonoured.
The trustee of a SMSF wrote a cheque for the pension payment and it was dishonoured when presented. This is not acceptable for an SMSF as the course of action that prevented the payment was not beyond the trustee's control. In an SMSF, the trustees are responsible for the running of the fund and they would be expected to ensure there were sufficient funds in the bank account to ensure the cheque payment would be honoured. The minimum pension requirement would not be satisfied in the relevant year.
The super income stream will be taken to have ceased at the start of that income year for income tax purposes. The cheque is subsequently honoured.