Logical pension assessment allowed

SMSF minimum pension drawdown exceptional circumstances self assessment ATO

SMSF trustees can self-assess if their personal circumstances have an impact on their ability to pay minimum pensions but need to do so in a pragmatic way.

SMSF trustees can self-assess whether they have met the exceptional circumstances criteria for not making a minimum pension drawdown, but must apply clear logic that is demonstrable to their auditor, according to the ATO.

ATO superannuation and employer obligations director Paul Delahunty said the tax commissioner has stated a trustee can self-assess whether conditions that would lead to an exception to pay a minimum pension applied, but this required adherence to narrow guidelines.

“There are limited situations in which the exceptional circumstances can apply if the minimum pension standards are not met,” Delahunty said during a panel discussion at the recent Auditors Institute SMSF Auditors Day in Melbourne.

“It’s important to recognise that all of those criteria have to be met if the commissioner is going to allow a super income stream to continue for an income year.”

He said the criteria as to when the exceptional circumstances will apply was outlined on the ATO’s website and noted the first was whether a trustee did not pay the minimum pension amount in an income year because of an honest mistake resulting in a small underpayment or if there were matters outside of their control.

“The honest mistake or outside of their control criteria are addressed on our webpage and the important aspect is the commissioner is saying that it’s a self-assessment test. On that basis you should adopt a pragmatic approach in relation to those criteria,” he said.

“Everyone will have their own set of criteria and logic they will apply to the honest mistake or matters that are outside your control so, from an auditor’s perspective, it’s a matter of understanding what logic and thought process has been used and how it’s been justified.”

He pointed out the small underpayment aspect was not something that could be self-assessed and the ATO has stated it cannot exceed one-twelfth of the minimum pension payment in the income year.

“Where there is a tick-the-box requirement in relation to an honest mistake, there is also an associated requirement that it doesn’t exceed one-twelfth of the minimum pension payment in the income year,” he said.

“There may be a suggestion that a nil pension payment is acceptable, which we don’t agree, but that’s not to say the commissioner can’t turn his mind to that scenario as well.

“In that situation, the trustees can engage the commissioner to provide potential endorsement for that income year and it may not meet the criteria in relation to self-assessment, but it doesn’t mean that it’s outside the scope of the commissioner to provide endorsement as well.”

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