An SMSF specialist has reminded practitioners of the ATO’s ability to use discretionary powers in situations where trustees have not met the minimum pension requirement particularly with regard to the updated Tax Ruling (TR) 2013/5.
The current version of TR 2013/5 Income tax: when an income stream commences and ceases, no longer allows an income stream to be automatically restarted with all of the existing values and conditions in place if SMSF trustees fail to meet their minimum pension obligation in one income year but satisfy this duty in the subsequent financial year. Instead the existing pension now has to be commuted with a completely new income stream commenced in its place.
“[If the trustee fails to satisfy the minimum pension standard] the first thing you would try to apply is the [ATO] Commissioner’s general powers of administration to treat the pension as if the minimum pension was paid,” Accurium head SMSF education Mark Ellem suggested.
“At a firm I previously worked with we had success with applying to the Commissioner where the [minimum pension] shortfall wasn’t one twelfth [that would have allowed for self-assessment] it was twelve twelfths and we got a favourable outcome. The ATO treated [the income stream] as if the minimum [pension had been met]” he told delegates at the Accurium SMSF Compliance Day 2024 held recently.
“In this situation that’s gold.”
Ellem also took the opportunity to highlight how the updated TR 2013/5 would treat a payment of a minimum pension amount in the year after failing to meet the payment standards but before the compliance issue was discovered, that is, prior to the existing income stream being stopped and new one commenced.
“Sorry [but that won’t count towards any payment standard]. You’ll have to take out a pro rata minimum again on the new pension,” he explained.
He pointed out the issue of client communication regarding this subject is now more important than ever.
“[Tell] your clients ‘you make sure you pay the minimum pension because here are the consequences [and they are] dire’,” he concluded.
