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Multiple pension circumstances remain unclear

A recent Australian Taxation Office (ATO) ruling on pensions has not addressed how SMSFs should treat a situation where more than one pension is in existence and they are all underpaid for the financial year.

Heffron SMSF Solutions head of technical services Meg Heffron said the situation was more common than would appear.

“More commonly a member will have more than one pension and this structure is not unusual. There is often one pension that is largely tax free and one pension that is largely not,” Heffron told delegates at last week’s Heffron Advanced SMSF Training Day 2013 in Perth.

“My big question mark here is if they’ve both been underpaid, and therefore both deemed to have ceased right back at the start of the year, are they all mixed up [as one pension] now?”

Despite not having been addressed in TR 2013/5, she said the ATO did have a position to deal with the situation.

“I know the tax office’s position on that, and one I happen to agree with, back in 2008 was no they don’t mix up, but they are almost treated like pension accounts in waiting,” she said.

“So the pensions have stopped temporarily for the year, but when they restart they are still separate. But the thing I really wanted from that ruling that I didn’t get was confirmation on that point.

“For me it’s probably one of the more profound things. If we underpay both pensions and we don’t get any special concessions, and have to treat them as stopped, mixing those two pensions would be an unmitigated disaster given how much effort it would have taken to have them separated in the first place. And it’s not something we can undo because once they’re together, they’re together.”

She said the ATO had already indicated it would release additional information on the subject in the coming months to help clarify its official position.

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