Due to some uncertainty over the effect of draft ruling TR
2011/D3, the ATO has clarified in a SMSF News Alert when a pension
ceases and the consequences if minimum payments are not made.
The ATO position is:
A pension ceases if the minimum payment is not made during a
year. The date of the cessation is the beginning of that year, and
the payments actually made are lump sum withdrawals. The trustee
cannot claim exempt current pension income in respect of that
pension for that year.
If a pension ceases because the minimum payment is not made,
then a new pension starts if the minimum payment is made in the
In some circumstances where the minimum payment has not been
made, the ATO may exercise their general administrative powers to
treat the pension as continuing.
An SMSF trustee can self-assess that a pension continues if all
of the following conditions apply:
The trustee failed to pay the minimum pension amount for that
income year because of:
an honest mistake resulting in a small underpayment of the
minimum pension amount; or
matters outside the trustee's control.
The trustee could have treated the income as exempt but for
failing to pay the minimum payment amount.
The trustee made a catch-up payment as soon as practicable in
the following income year or treated a current year payment as
being made in the prior income year.
Had the trustee made the catch-up payment in the prior income
year, the minimum pension standards would have been met.
The trustee treats the catch-up payment, for all other
purposes, as if it were made in the prior income year.
The trustee has not previously used this administrative
concession to treat a pension as continuing for the trustee.
If the SMSF trustee does not meet all these requirements, they
can still request the ATO to exercise their discretion to treat the
pension as continuing.
A 'small' underpayment is one that does not exceed
one-twelfth of the minimum pension payment in the relevant income
year, and 'as soon as practicable' generally means within
28 days of the trustee becoming aware or in a position to be aware
of the underpayment.
The ATO's position will provide some comfort to trustees who
have not strictly complied with the rules.
TR 2011/D3 is yet to be finalised and, like the draft ruling,
the ATO's position on this will apply from 1 July 2007.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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