Forgetting to take the minimum pension is one of the cardinal sins when it comes to operating your self managed super fund. This issue was highlighted within draft tax ruling, TR 2011/D3 where the Commissioner states that failure to meet the minimum will mean the fund is not entitled to tax exemption on the income supporting the payment of the income stream. In addition, the pension is deemed to have ceased at the start of the financial year and all payments taken throughout the year are to be treated as super lump sums for both income tax and SIS Regulation purposes.
In recent times, we have seen the Australian Taxation Office (ATO) provide some guidance for SMSFs regarding when a pension starts and stops. In particular, much of the interest has centered around the Commissioner’s powers of general administration (GPA) where he may allow the fund to claim tax exemption where the minimum pension has not been met for an income year. This may occur where there has been a small pension shortfall or where failure to take the minimum was outside the control of the trustee(s) and the matter is rectified as soon as practicable after identifying the problem.
The ATO guidance provides examples where trustees will be able to self-assess the GPA concession where all the following condition are met:
- failure to meet the minimum pension requirements was an honest mistake or was outside the control of the trustees; and
- the underpayment is only small (that is, does not exceed one-twelfth of the minimum annual pension payment); and
- all of the other GPA conditions have been met; and
- the trustee has not previously been granted the Commissioner’s concession for failing to meet the minimum requirements.
A range of examples are provided on the ATO website that explain how the Commissioner’s powers of general administration may apply.
Join us as we discuss this issue at the “Changing Face on SMSF” webinar this coming Thursday, 28 February 2013.