A senior SMSF technical executive has confirmed trustees can implement standing orders at the beginning of a particular financial year dictating any drawdown above the minimum pension amount be treated as a lump sum, but warned the practice cannot be considered a set-and-forget measure from an administration perspective.
“If we’re talking about SMSFs, when the laws changed in 2017, there was this concept of putting, for want of a better term, a standing order in place at the beginning of the year [declaring:] ‘I want to take payments from my pension account up until my minimum amount and then once I reach my minimum amount, any further payments will be treated as a lump sum from my pension interest [and this is valid],’” Accurium senior SMSF educator Anthony Cullen told attendees of a recent technical webinar.
Cullen noted the paperwork required for such a strategy goes beyond preparing an official minute.
“In terms of how you might go about doing that and what paperwork you might put in place probably comes down to the trust deed of the fund itself,” he said.
He pointed out the importance for trustees invoking this type of approach for their income stream payments to continually monitor the administrative implications of the regular drawdowns they are taking.
“[One thing] to think about when you put those standing orders in place at the beginning of the year, particularly for your clients who you might still be processing on an annual basis, is you need to know when [the drawdowns] convert from being pension payments to commutations or lump sums from that pension account because lump sums, commutations from a pension account, are reportable from a TBAR (transfer balance account report) perspective and every fund is a quarterly reporter now,” he advised.
“So if [the withdrawals go] from being pension payments to lump sums in January, for example, you need to report that at the end of April and if you’re not preparing the accounts until April of the following year, you’ll be 12 months behind in terms of the lodgement requirements.”
He also took the opportunity to remind practitioners the decision to treat payments above the minimum pension as lump sums must be communicated and documented prospectively and cannot be declared after all of the withdrawals for the year have been made.
