Missed pension exemption unfair to couples

SMSF Minimum pension payment shortfall ATO exemption Concession Graeme Colley

An ATO concession allowing a missed pension payment to be made later without impacting the income stream is limited in its usage and unfair to couples who make the mistake together.

SMSFs with more than one member who has failed to meet minimum pension payments should not automatically rely on exemptions granted by the ATO as they only apply on a per fund, not per member, basis.

SMSF consultant Graeme Colley said the ATO did allow an SMSF member drawing a pension to miss a payment under specific circumstances, but multiple members failing the payment standard should contact the regulator to rectify the problem.

“There are exceptions to missing a pension payment and the one-twelfth rule is a once-only concession the commissioner grants in some circumstances,” Colley said during a recent online briefing hosted by the Institute of Financial Professionals Australia.

“If it is an honest mistake and a small underpayment that is no more than one-twelfth of the minimum annual pension, the pension will be treated as being made providing a top-up amount is made in the next financial year after discovery of the underpayment.

“If that happens on a once-only basis, then the pensioner continues to receive the tax exemption in the fund on the income on the assets that are supporting that particular pension.”

He noted that while the concession was available for those unable to make a payment due to circumstances such as extended jury duty, ill-health or a lack of access to an SMSF’s bank account, which occurred with people unable to enter Australia during the COVID-19 lockdowns, couples in an SMSF could not collectively use it.

“If you look at the ATO’s website, it does mention the concession is a once-only per fund thing,” he said.

“Now that seems unfair if you have a husband and wife in an SMSF who are in the same circumstances, but only one of them can use the concession.

“What I would suggest in those circumstances is to notify the ATO of the circumstances and if they are reasonable, indicate there are two members in the same circumstances and the ATO should grant the concession in those circumstances.”

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