An SMSF legal expert has issued a warning to advisers and trustees about the potential risks involved in retroactively applying a pension to the previous financial year for their clients.
DBA Lawyers director Daniel Butler noted a pension can only commence after the respective member submits an application or request, as stated in Taxation Ruling (TR) 2013/5.
“Many advisers that I see want to take their clients’ [pensions] back to 1 July [because] it’s easy. They want to take their accounts back then and it’s a good time to start the pension,” Butler told attendees during an online update last Friday.
“The ruling on this is TR 2013/5 and this provides that a pension can commence before the first payment, however, it cannot commence before the member’s application for the pension.
“So you need the member to apply to request the pension and, further, the pension must comply with any terms or conditions in the fund’s documents or the pension’s governing rules.
“The better view is that you cannot backdate your pension. You would [need] to have the member’s application to comply with the ATO’s view in TR 2013/5 and you would also need to have the right documents in place.
“The documents should have provisions in them that can be enacted at any one time. It could be an oral resolution that your client resolves to commence the pension and then document that.”
He also stressed the importance of practitioners following the provisions specified in the Corporations Act 2001 in regards to the choice of pension product.
“The Corporations Act puts the onus on you [as a practitioner] to supply the trustee a product disclosure statement (PDS). That is, the PDS should contain what a reasonable person should reasonably need to know to make an informed decision,” he noted.
“So the view is that you cannot go back, you should only be going forward. And watch out, because If you do backdate for your clients, that could be quite serious.”
