The Australian Taxation Office (ATO) has officially withdrawn an interpretive decision (ID) that created industry uncertainty over when a pension began and when it ceased in relation to the tax treatment of earnings.
ID 2004/688 originally proposed: “Where a fund ceases to have a current pension liability due to the death of a sole member with no contingent pension payable, the assets cease to be ‘current pension assets’ and the income is no longer exempt pension income.”
This position sparked debate about when a pension ended and the unfair tax treatment resulting from the decision.
This ID has now been withdrawn.
The ATO eventually amended its position on the matter, ruling pension earnings would remain tax exempt upon the death of the member receiving the pension even if the pension did not automatically revert to another individual as long as the death benefits were paid out as soon as practicable.
AMP SMSF head of policy Peter Burgess commented on the development, saying “[the] decision which led to almost a decade-long debate about when a pension starts and stops has been withdrawn”.
