The low cap rate window

When the ATO released the pensions tax ruling (TR 2013/5) and the partial commutation determination (SMSFD 2013/2) the ATO surprisingly (but delightfully) confirmed that a member can have their cake and consume it as well.  The cake being payment from the superannuation interest supporting the pension.

The member can, by making an election, have that payment taxed as a superannuation lump sum and have the payment counted for the purposes of the minimum pension payment rules.  This would be done, where the member has attained their preservation age, has not attained age 60 and has not exhausted their low cap rate threshold (which has been indexed to $185,000 for the 2014/15 tax year).   This fortuitous alignment of factors is the low cap rate window.

Where the fortuitous alignment applies – the payment will be tax free even though the member has not attained age 60 and the payment will also count towards satisfying the pension payment rule.

For the window to apply, the member must make an election which satisfies the requirements of tax reg 995.1.03. 

This window applies to both account-based pensions, transition to retirement pensions and market linked pensions.  However, the window ceases once the member attains age 60, as all payments paid from the superannuation interest after the member has attained that age are tax free.

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