Highlights from the ATO Assistant Commissioner, SMSF Segment

21 August 2015

Some of the more interesting points made by the ATO Assistant Commissioner, SMSF Segment are set out below.

Commencing a pension

  • Make sure that the trust deed permits the trustee to pay the pension - older trust deeds may require updating.
  • Make sure that the member to whom the pension is to be paid is eligible to receive the pension – only those born before 1 July 1960 – have a preservation age of 55; everyone else has a preservation age of 56 or more.

Operating a pension

  • Make sure the minimum required pension is paid each financial year.
  • While pension shortfalls can be ignored in limited circumstances (eg underpayment is less than 1/12th of the required minimum and the underpaid amount is paid as soon as possible after the shortfall has been identified) trustees can only self assess this administrative concession once – thereafter it is the ATO which decides.
  • Liquidity management in pension phase must be carefully considered – particularly, if there is real estate.  
  • In order to obtain the benefit of tax free earnings in pension phase, an actuarial certificate is required (except where the entire fund is in pension phase for the year).

Transfer of a pension on death to reversionary beneficiary

  • The pension can only transfer on the death of the member.
  • The reversionary beneficiary must, from a SIS and Tax perspective, be eligible to receive a pension.
  • There is no recalculation of the minimum pension limit in the financial year in which the member dies - however, the minimum pension limit must be paid by the end of that financial year.
  • At the start of the next financial year the minimum pension limit will be determined, having regard to the age of the reversionary beneficiary.
  • If the pension payable to the member was a transition to retirement pension, then on the member’s death the preservation components of the pension account balance become unrestricted non-preserved – and the age of the reversionary beneficiary is irrelevant in relation to this aspect.
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