ATO pension guidance raises questions

Minimum pension standards

The ATO’s guidance on minimum pension standards for SMSFs raises some key questions, an actuarial services provider says.

There are gaps in the guidance provided by the ATO regarding recommencing an SMSF pension that has previously failed to meet the minimum pension standards, according to an actuarial services provider.

In a blog post on its website, Accurium said: “ATO guidance is quite clear that the income stream will be taken to have ceased for income tax purposes at the start of the financial year and will lose eligibility to claim exempt current pension income (ECPI) in that year. Further, any payments made will be treated as lump sums for tax and Superannuation Industry (Supervision) Regulations purposes.

“What remains uncertain is how and when the income stream could again be a superannuation income stream and eligible for ECPI.”

Pointing to the ATO’s webpage outlining the minimum pension payment requirements for SMSFs, the firm stated that in the event of an SMSF failing to meet the minimum pension payments in one year, the ATO had not provided a definitive answer as to whether the pension could recommence automatically the following year provided the standards were met.

The lack of clarity from the SMSF regulator in this regard left a number of “practical questions” unanswered, it said.

Specifically, it noted the ATO needed to address what date the pension could recommence, what the terms of the new income stream would be and what the balance of the new pension should be.

The ATO also needed to shed light on whether the pension balance had become an accumulation balance in the year the minimum pension standards had not been met, it added.

“A common industry approach where a pension fails to meet the pension standards is to consider the pension having recommenced eligibility for ECPI from 1 July of the year after the pension standards were not met. However, the amount of documentation completed to support this pension commencement is likely to vary across the industry,” it said.

“With the ATO placing greater emphasis on documentation and the new transfer balance account report regime requiring pension commencements for some SMSF trustees to be reported to the ATO quarterly, we would encourage and welcome further guidance from the ATO on the requirements for commencing a new pension following a failure to meet the minimum pension standards.”

In September, Accurium SMSF technical services manager Melanie Dunn said the timing of fund transactions was critical to maximising the amount of ECPI that could be claimed by SMSF trustees and encouraged advisers to think ahead in order to help clients plan these events.

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