SMSF trustees looking to commence a pension but not actually receive payments until a later date have been reminded of the necessity to get their paperwork in order and to make a nominal payment to get it on the record.
DBA Lawyers senior counsel Bryce Figot said the commencement date of a pension was distinct from the date of first payment and this allowed SMSF advisers and trustees to plan ahead.
Figot said ATO Taxation Ruling 2013/5 indicated the commencement day of a pension could not be prior to the day established as the commencement day in the terms and conditions, agreed between the member and the trustee, that will govern the superannuation income stream.
He noted, however, the commencement date could be prior to the first payment date, according to the same ruling.
“Is it possible to start a pension now, but not make a payment until later on? Sure. Why not?” he said.
“The ruling states a commencement day may occur before the due date of the first payment, depending on the rules which govern the superannuation income stream.”
He used an example of someone aged 59 who retired on 1 July 2021 with a $1.7 million accumulation interest, and will turn 60 on 30 June 2022, noting if the minimum pension was paid now, the retiree would pay around a maximum of $10,800 in income tax. If the minimum was paid on 30 June 2022, the tax figure would drop to zero.
This strategy becomes very relevant in the year a client turns 60, but the tax ruling still requires advance planning, specifically that the commencement day cannot precede the date of the member’s request or application, he said.
“So, you have to get your paperwork in order for it to start today but make the first payment in the future. You must have your member request or application and then the trustee agrees to it before anything else,” he noted.
“Now my suggestion is to still pay something now, even if it’s just a small amount, just to get the pension payment on the record, even if it’s just a $5 payment.
“If you have to include $5 in your assessable income so be it, but at least it’s got a 15 per cent tax offset.”