SMSF members who fail to meet minimum pension payment requirements may struggle to avoid sanctions from the ATO and uncertainty about their actions may exacerbate their mistakes, a technical specialist has highlighted.
Smarter SMSF education and technical manager Tim Miller said the rules granting an allowance for an error to be made have not changed, but the revised rules on when a pension starts and ends contained in Taxation Ruling (TR) 2013/5 has altered how they can be used.
Speaking during a recent webinar hosted by SuperGuardian, Miller noted SMSF pensioners still were able to self-assess if they had breached the minimum payment requirements and if their exempt current pension income (ECPI) status was retained.
“For you to be able to self-assess, the [pension] shortfall must be less than one-twelfth of the annual minimum and the fund must be a first-time offender. In all other circumstances you cannot self-assess. You have to apply for discretion from the [ATO] commissioner,” he said.
“In most circumstances, if it’s an error and you are the trustee of an SMSF and knew you had that obligation and have not paid it, it is not going to result in the commissioner providing that discretion.”
He added with the changes to TR2013/5, which state that any failures to meet payment requirements caused a pension to cease and a new income stream had to be started, meant making a decision to apply for discretion created further uncertainty around the status of a pension.
“If you apply for that discretion in March and don’t take the decision to consciously commute the existing pension and start a new one, how long is the removal of ECPI going to last for?” he said.
“The problem with the process of applying for discretion from the commissioner is that’s not going to happen straightaway, which might create or extend the loss of ECPI.
“So we need to be reviewing these funds, certainly at the first quarter of the year, because we need to report any failure as a debit, but is that pension now a separate superannuation interest?
“Now the general administration process states it remains as a separate interest, so you don’t get that ECPI, but people aren’t winding that back and putting it into accumulation, because they haven’t had to in the past.
“What we need from the ATO is further information as to whether we have to roll back into accumulation or are we just treating withdrawals as lump sums from that amount.
“If we are not putting it back to accumulation, are we applying the tax-free and taxable proportions that would normally apply to a pension interest?
“This is why [the changes to TR2013/5] is a bit of a dog’s breakfast because it’s now creating all these further administrative issues.”
