ATO, Pensions

No leeway on overpaid pensions

minimum pension payments

Formal elections made at the start of the 2019/20 financial year as to the treatment of payments made above the minimum pension are unlikely to allow any re-classification of drawdowns in excess of the COVID-19 reduced threshold, a senior executive at an industry body has indicated.

The ATO is unwavering on its stance regarding the re-classification to lump sums of payments made above the coronavirus instigated reduced minimum pension regardless of whether strategies for the treatment of these overpayments were put in place before the COVID-19 relief measure was announced, a senior industry body executive has said.

Speaking at the recent Tax Institute 2020 National Superannuation Online Conference SMSF Association deputy chief executive and policy and education director Peter Burgess said: “The ATO has been very clear on this that they don’t want to see any re-classification of pension payments. Now it also extends to situations where clients may have put an election in place at the beginning of the financial year that they wanted any payments in excess of the minimum to be treated as a commutation.”

“So even if the client had put one of those elections at 1 July 2019 they can’t go back and re-classify amounts that have been paid as a pension, as a lump sum commutation,” he explained.

Burgess pointed out the ATO’s position on payments above the minimum pension will potentially rule out other conventional practices allowing flexibility around the classification of these amounts.

“There are other situations which members have raised with us where clients perhaps have an accumulation account and a pension account within the one fund [and] where it’s quite common in those situations that they don’t make a decision until the end of the year as to what amounts come out of the accumulation account,” he shared.

“Now in those situations I think it’s arguable that there hasn’t been any reclassification of pension payments although the ATO may see that differently,” he added.

The government announced a reduction to the minimum pension in March this year by which time many trustees had satisfied their pension payment requirement at the pre-coronavirus relief level.

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