With the baby boomers starting to retire there will be an
increased number of people moving into their SMSF pension phase and
with this comes the need to start considering the requirements of
making minimum pension payments.
Funds in the pension phase must make minimum cash payments each
year to qualify for tax-free benefits. The amount increases with
the age of the member. This drawdown rule is partly designed to
ensure people use their SMSF to cover the costs of retirement and
not as a means of hoarding wealth. With the increase in the number
of people entering the pension phase, it is expected that more
errors will be made around pension payments.
The rules are strict and are easy to inadvertently breach (a
common breach is the occurrence of loans being made from an SMSF to
members). The requirements involve the minimum pension payments and
there are not many allowable concessions. With the drawdown rules
being particularly difficult for those with real property or their
family business in their super fund.
Important Lesson to Trustees of SMSF
Former chairman of BHP Billiton, Don Argus, is currently engaged
in a legal battle with the Australian Tax Office over his
The ATO is looking to charge tax on almost $1.2 million in
income earned by the $15 million self-managed superannuation fund
of Mr Argus and his wife, Patricia. Argus raised an objection,
claiming that the income should be tax free, however, on 29
September 2014, the ATO disallowed the objection and so the
Argus' have now filed an application for the decision to be
varied in the Federal Court.
The Argus's are seeking an almost $1.2 million reduction on
the tax paid by them for the 2010 tax year claiming the assessment
of $2.25 million in tax wrongly concluded the SMSF did not pay out
the minimum pension amount required.
The outcome of the case is pending as the dispute was reportedly
scheduled for hearing in Melbourne on 2 February 2015.
A SMSF trustee needs to make sure it pays the minimum amount of
pension for any given year (e.g. a $15 million fund will have a
minimum pension of around $900,000). This can be done simply by
making sure that direct debits are set up into the relevant bank
It is important that SMSF trustees make sure that valuations of
the investments are made so the calculation of the amount has been
It is imperative that people know:
when the pensions starts;
when the pension stops;
What is the minimum amount required to be paid.
If you have clients who are reaching the pension phase, it is
important to talk to them to ensure that, they understand the
strict requirements and work closely with them to ensure that the
minimum payments are calculated correctly and made within the set
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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