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June optimal for pension commencement

SMSF; pension; exemption

A specialist lawyer has suggested June is the best time for SMSF members to start a pension, using an exemption related to minimum yearly draw-down amounts.

The month of June could be the best time to start a pension within an SMSF due to an exemption regarding the minimum yearly draw-down amount for members, a sector lawyer has said.

DBA Lawyers special counsel Bryce Figot noted the fact during a recent webinar with reference to clause 4 schedule 7 of the Superannuation Industry (Supervision) Regulations.

“Under [this clause] if a pension commences in June of a financial year, on or after 1 June of a financial year, no payment is required to be made for that financial year,” Figot noted.

“So you can start a pension and start getting the pension [income] exemption, but not actually have to pay any money out for the year, so that’s quite good to know about.”

He pointed out on the surface a stipulation in ATO Tax Ruling TR 2013/5 paragraph 58 may be problematic to this strategy, but claimed in reality there was nothing advisers or trustees needed to worry about.

“TR 2013/5 paragraph 58 [says] ‘a liability to make a single payment for one year will not satisfy as a liability to pay a member a series of payments and thus will not satisfy as an income stream’, so if you wanted to be very strict about [complying with this ruling], you could just make one or two one-dollar little payments in June, but technically you don’t even have to do that,” he said.

It would be highly unlikely the ATO would use this element of the tax ruling to take enforcement action against an SMSF in these circumstances, he added.

“I think most people would not [be worried about this] and would say ‘Bryce, you are jumping at shadows’,” he said.

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