Practitioners with clients who have failed to meet the minimum pension payment requirement must determine if they have already used the self-determined one-twelfth exemption provision and may need to check previous audits or ask for a trustee declaration, a senior SMSF executive has said.
BDO senior consultant Peter Crump said in light of changes to Tax Ruling 2013/5 relating to when a pension starts and finishes, it was important to know if this exemption had been used as it cannot be applied a second time.
“The ATO has said: ‘We’ll give you one get out of jail free card and it’s the fund trustee that has the card, and if you mess up, only do it once and only do it by a little bit,’” Crump told delegates at The Tax Institute National Superannuation Conference in Sydney last week.
To this end, he pointed out the regulator does allow breaches of the minimum payment rules where an honest mistake is made or where circumstances were beyond control of the trustee and the underpayment was no greater than one-twelfth of the minimum payment required.
“The ATO are saying in those cases we will allow one self-assessed process to ensure you’re not penalised for underpaying the pension,” he added.
“In terms of policing [the use of the exemption], I think if I came across a fund with a short payment that met this one-twelfth rule, in the first instance, I would say it looks like we can do it.
“My next question is: has it been done before? So, look back year by year since this rule came into place to see if it’s been exercised.
“It may not be practical, but in terms of the audit, how does the auditor know that concession has been appropriately applied, so you do as much as you can.
“My other suggestion would be to get some type of declaration from the trustee that says we don’t believe we’ve used this [exemption] before.
“From the administrator’s and auditor’s perspective, they have then done as much as they can to ensure this is a once-only usage of that process.”
He added with any breach greater than one-twelfth, a trustee should not assume the exemption will be applied automatically and may require directly approaching the ATO to address it.
“In these cases you have to scrape the knees a little bit more and go to the ATO and say: ‘For these reasons, we haven’t met the minimum, can you please forgive this,’” he said.
“Certainly you need to make up the shortfall in the next year, but don’t assume the process is automatic, and stating ‘my accountant got it wrong’ isn’t going to pass, unless there is some reason why they were unable to do it because they were ill or some other issue like that.”
