The update to Tax Ruling (TR) 2013/5 Income tax: when a superannuation income stream commences and ceases appears to have aligned SMSFs with Australian Prudential Regulation Authority-regulated funds when addressing pensions that have failed to meet the payment standards.
TR 2013/5 now dictates if SMSF trustees fail to satisfy their minimum pension, it must be commuted and a new income stream restarted for the members to continue to enjoy the associated tax benefits, such as exempt current pension income.
In years prior to the update, an income stream where the minimum pension had not been met for an income year could be automatically restarted in the subsequent fiscal year, with the same value, if the payment obligation was met in that 12-month period.
Colonial First State head of technical Craig Day noted this has been the approach public offer funds have taken when payment standards, due to an error, have not been fulfilled in a particular year.
“We had one situation [where this issue arose]. It was during COVID [and occurred] because the client had an excess transfer balance cap determination and the ATO sent a physical letter to our offices that nobody was in,” Day told delegates at the ASF Audits Technical Seminar 2024 held in Adelaide recently.
“[So] it sat there for longer than the specified period and then there was an auto-commutation authority [issued] that once again no one got, so therefore the pension stopped.
“We worked on that and the legal view from our guys was we need to stop that pension straightaway and restart it.
“So that was the view from large fund land from the beginning that [in these situations] there’s no pension that continues.
“I know what the industry view from SMSF land is, but that’s quite different from what our lawyers think.”
