SMSF trustees that did not meet minimum pension payment requirements prior to the 2024 financial year should be cautious about applying for ATO discretion as it may deny the application and rule the fund adopts newer payment processes.
Heffron head of education and content Lyn Formica noted discretion in regards to pension payment breaches was still possible following the revision of Taxation Ruling (TR) 2013/5, which requires pensions that failed to make minimum payments to be commuted and restarted to claim exempt current pension income (ECPI).
“If you apply for discretion for 2023/24 and earlier years and you don’t get it, then the ATO will require that client to meet the 2024/25 rules,” Formica said today at the Heffron Super Intensive Day 2025 in Sydney.
“We know the industry approach [used prior to the revision of TR 2013/5]. If I fail in 2023/24, I lose exempt current pension income for that year, but a new pension starts on 1 July 2024 and I go on my merry way and get ECPI back again.
“If we apply for discretion and don’t get it, the current rules apply. So no ECPI for 2023/24, no ECPI for 2024/25 and no ECPI until I stop that pension and start it again.
“Be careful if you apply for discretion. You may choose to not take the risk of applying for discretion because you don’t want to lose ECPI for that long period of time.”
She added Heffron was taking a proactive approach for clients who decide to apply for 2024/25 failures by “hedging its bets” and still commuting the pension.
“We commute the pension as if we’re not going to get discretion. So we calculate a pro rata minimum, we commute, we start again and lodge our request for discretion,” she said.
“We’re doing that because it can take six months for the ATO to decide whether they’re going to exercise discretion or not. If I wait and I lose, that’s another six months when my client doesn’t have exempt income.
“If I get the discretion – great. I’ve just got an unnecessary stop and a restart that I didn’t need to do, but it means I’ve covered both bases.
“Also, when I calculate that pro rata minimum, I work on the principle you do get the discretion and that will mean the member balance is as high as it possibly could be and you don’t want to fail again because you got the pro rata minimum wrong.”
