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Pensions now a life strategy

As a result of the latest tax ruling on pensions, putting together a plan for a retirement income stream, in regard to segregated or non-segregated income assets, has become a strategy with a focus on an SMSF member’s living years rather than providing for a definite result upon the death of an SMSF member, according to a technical expert covering the sector.

The recent release of tax ruling TR 2013/5, which established definitively when a pension commenced and when one ceased, had made all the difference in how pension strategies could be approached, Cavendish Superannuation head of education and market development Tim Miller told delegates at last week’s 2013 Institute of Chartered Accountants in Australia National SMSF Conference in Melbourne.

“Pensions and segregation particularly for me have historically been a death strategy; a strategy in regards to the tax and how we calculate it, which method we use, in contemplation of somebody dying,” he said.

“But I certainly believe now that we’ve got amendments to the tax regulations, and now that we’ve got when a pension commences and when it ceases, now that we’ve got this determination coming forward about segregation, I see it very much as a life strategy and not a death strategy.

“I think now we can contemplate that in death we’ve got our tax protection now for pension funds, so it’s now more about what are we looking for and what have we got to pay them when members are alive.”

Miller said the significance of TR 2013/5 could not be downplayed considering 88 per cent of tax deductions claimed by SMSFs were exempt current pension income deductions.

And he stressed the most pressing issue for SMSFs regarding exempt current pension income deductions remained not paying the minimum pension amount as stipulated by TR 2013/5 under the pension standards.

“Yes, you’ve got your general administrative issues where if you’ve got a shortfall you can make that up once or go to the ATO (Australian Taxation Office) and ask for discretion. But the reality is if you don’t pay the minimum, you lose the deduction and the pension ceases,” he said.

“And if the pension ceases, you’ve got the merging potentially of your tax-free and taxable components. So it’s a huge issue from that ruling.”

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