Trustees should exercise caution when commencing and managing their transition-to-retirement income streams (TRIS) as the ATO has yet to clarify its stance on addressing compliance concerns specific to SMSFs.
Smarter SMSF technical and education manager Tim Miller acknowledged the potential consequences of failing TRIS requirements were problematic as members were required to contribute a minimum annual payment while not exceeding a maximum annual pension payment of more than 10 per cent.
Miller added the ATO had not taken action on draft Practice Statement Law Administration 2021/D3 and draft Taxation Determination 2021/D6, which address the tax commissioner’s discretion when members receive benefits that violate legal requirements.
“In May, the ATO came out and said ‘we are not ready to finalise these documents’. So at this point in time, we need to be mindful that the ATO’s draft position is that if you go over the maximum, then you are definitely going to have income taxed at a marginal tax rate,” he told attendees at a SuperGuardian pension planning webinar today.
“You have also got illegal access of preserved benefits and because you have gone over that maximum, there’s going to be some form of ramifications. You are in a bit of a holding pattern because we don’t have a definitive position from the ATO.
“What the ATO did in this ruling is provided examples, but most of those examples were referencing APRA (Australian Prudential Regulation Authority) funds and what the circumstances would be. [However], what is their position in regards to SMSFs?”
He suggested in the absence of guidance regarding the compliance actions taken towards SMSFs in failing their TRIS obligations, trustees should abide by the existing rules to avoid potential risks.
“The reality is that the tax office have come back and said that SMSF members have far greater control and therefore are far more likely to have the full letter of the law applied to them in regards to not providing discretion and, therefore, income being taxed as taxable income,” he said.
“We need to be really careful of that. We know the SMSF Association have made a submission to [ask for] more examples in these documents that support SMSFs or at least provide us with greater clarity as to what the ATO position will be, so that we can communicate that with our clients.
“Ultimately, what we know from a TRIS point of view is that if we fail to meet the minimum pension, then the pension ceases at the start of the year and all payments will be treated as a lump sum and it’s going to be taxed as assessable income, unless the ATO apply their discretion and that’s a big if.”