ATO provides further clarification on SMSF pensions

Following some industry confusion, the ATO has provided clarity on the necessary steps an SMSF trustee must undertake when they have failed to meet the minimum payment for a pension.

Where a super fund has failed the minimum pension payment, the ATO says the pension has then ceased, the exemptions are lost for the entire financial year and the trustee must begin a brand new pension.

To date it has been unclear, however, as to whether the trustee can use the same documents or if they “have to roll [the pension] back and start afresh”.

“We now have a response from the ATO which does provide certainty,”

“The ATO say you must do all the documents again; you’ve got to do all the re-calculation, the market valuations and document all this from a roll-back position because technically when you failed to pay the minimum it was a rollback from the start of the financial year.”

Where regulations such as meeting the minimum payment for the pension were met in the following income year, “a new pension would be taken to have commenced”.

“At a minimum the trustee would be required to have new documents evidencing the re-valuation at market value and the re-calculation of the minimum amount,” he said.

“Additionally you’d need to work out the tax-free and taxable on the pension.”

The ATO is basically saying is yes you’ve got to go through all that documentation process again if you fail the minimum so it’s not just failing the minimum and wiping out your pension exemption, it’s also the cost of all those documents again,” he said.