The ATO has stated there is a set of specific and connected conditions where an SMSF may continue to pay an income stream despite the fund not meeting the minimum pension payment standards.
In a technical update, the regulator listed five conditions that must all be satisfied in order for the tax commissioner to allow an income stream to continue despite the total payments in an income year being less than the minimum payment amount outlined in the Superannuation Industry (Supervision) Regulations.
It stated the first condition was where a trustee failed to pay the minimum amount because of an “honest mistake made by the trustee resulting in a small underpayment of the minimum payment amount for a super income stream, or matters outside the control of the trustee”.
Additionally, it said that “if the income stream was in the retirement phase, the entitlement to the ECPI (exempt current pension income) exemption would have continued but for the trustee failing to pay the minimum payment amount”.
It added a further condition was that a trustee, when becoming aware the minimum payment amount was not met for an income year, made a catch-up payment as soon as practicable in the current income year or had treated a payment made in the current year as being paid in the prior income year.
Off the back of that condition, it outlined two further conditions that had the trustee made the catch-up payment in the prior income year, the minimum pension standards would have been met, and the trustee had treated the catch-up payment as if it were made in the prior income year.
Provided all the conditions above had been met, it said “the super income stream is taken to have continued and a new pension is not commenced in the following year. The proportioning rule does not need to be applied again to determine the tax-free and taxable components”.
The update added that if an income stream was in retirement phase, the fund trustee could continue to claim an income tax exemption for earnings on assets supporting that pension, and any payments made to a member during that income year would be treated as super income stream benefit payments, and not super lump sums.
