SMSF administrators need to ensure their reporting systems are equipped to deal with the consequences of funds failing to pay the minimum pension, a technical expert has said.
SuperConcepts SMSF technical services executive manager Mark Ellem said the reporting conundrum faced by SMSF accountants and administrators when funds failed to pay their minimum pensions for the year could be alleviated if administrators took the time to review their reporting processes in advance.
“Those who are responsible for the preparation of financial statements, SMSF annual returns and transfer balance account reports (TBAR) should review their procedures and SMSF administration systems for this scenario to ensure that correct treatment, calculation and reporting is being done,” Ellem said in a blog post on the SuperConcepts website.
He pointed out this was particularly important in cases where SMSF administration systems had automated functions for claiming exempt current pension income (ECPI) and generating TBAR files, as a different approach might be needed depending on the situation.
“A particular approach may work for one of the consequences [of failing to pay the minimum pension], but not the other,” he noted.
“For example, ceasing the pension at the start of the financial year may ensure that the automated ECPI data submission and certificate generation is correctly implemented, but may result in the auto-generation of a TBAR with the debit value being the value at the start of the financial year, rather than the value at the end.
“A thorough understanding of how SMSF administration systems work will help determine the best approach for SMSFs in this scenario.”
He pointed out in the event of a minimum pension not being paid for the year, a fund would be unable to claim ECPI in relation to that failed pension and the pension would cease to be a superannuation income stream in retirement phase.
“Whilst these two consequences appear to be straightforward, it’s the timing of each of the above that can cause an accounting challenge to ensure the correct reporting and tax outcomes,” he added.
In November, actuarial services provider Accurium said there were gaps in the guidance provided by the ATO regarding recommencing an SMSF pension that had previously failed to meet the minimum pension standards.