SMSF members who are receiving a death benefit pension that fails to pay the minimum amounts will be viewed as having breached the payment standards under the revised rules for income streams, a superannuation technical specialist has warned.
Colonial First State head of technical services Craig Day said the revisions to Taxation Ruling 2013/5 also capture account-based pensions that are the result of a death benefit pension that reverted to a member on the passing of their spouse.
Addressing attendees at the recent Tax Institute National Superannuation Conference in Sydney, Day noted the Superannuation Industry (Supervision) (SIS) rules change the nature of payments received from a death benefit and how they should be paid.
“From a SIS compliance requirement, if this is a death benefit pension, what do the cashing rules say about how we need to take a debt?” he said.
“The SIS cashing rules say where there is a death benefit, it must be paid out either as a lump sum, which can be paid as an interim and a final lump sum, or as an income stream.
“However, if we fail the pension standards at the beginning of the year, have we now satisfied the SIS pension cashing rules because the pension has stopped and we’ve paid 12 lump sums.
“I don’t recall the rules allowing 12 payments – 11 interim payments and one final – so we have technically failed the SIS death benefit cashing rules.”
He said the ATO has been consulted on this and advised that it was possible to rectify the problem, but prompt action was required.
“The terrible outcome here is you need to get that money out of superannuation because you failed the pension requirement, but the ATO didn’t say that,” he added.
“They said as long as you restart your pension as soon as you become aware that you have failed, that will be okay on a forward-facing perspective,” he said.
“It doesn’t take away the fact you failed your death benefit cashing requirement, but if you did what they suggest, you would probably be fine.
“If you hang around for another six months delaying the commencement of the new pension, then all bets are off.”
