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Don’t miss the minimum


This is what the ATO says (and it's a bit scary).

If you fail to meet the minimum pension payment requirements for an income year:
  • the super income stream will cease for income tax purposes (except where we allow an exception)
  • we will treat you as not having paid a super income stream from the start of that income year.

Payments you made during the year will be considered super lump sums for both tax and SIS Regulations purposes.

This is the case even if you are entitled to receive a pension payment from the fund under its governing rules or general trust law. If the income stream is in the retirement phase, the fund cannot treat income or capital gains as exempt current pension income (ECPI) for the year. What about if you meet the minimum payment requirement next year? This is what the ATO says: If you meet the minimum pension standards, including the minimum payment requirement, the following income year, a new pension commences.

You must revalue the assets at market value and recalculate the minimum pension payment required at the start of the new pension.

Will the ATO disregard a breach of the minimum pension standards? This is what the ATO says:

In limited circumstances we may allow a super income stream to continue if the total payment for an income year are less than the minimum payment for the income stream. The exception generally only applies if all these conditions are met:
  • You did not pay the minimum pension amount in that income year because
    • an honest mistake resulted in a small underpayment (no more than 1/12th of the minimum annualised amount), or
    • there were matters outside of your control.
  • If the income stream was in the retirement phase, the ECPI exemption would have continued if you had made the minimum payment.
  • When you became aware the minimum payment was not made, you
    • made a catch-up payment as soon as practicable in the current income year, or
    • treated a payment made in the current income year as being made in that prior income year.
  • If you had made the catch-up payment in the prior income year, the minimum pension standards would have been met.
  • You treat the catch-up payment, for all other purposes, as if it were made in the prior income year.
You can self-assess whether the conditions are met, provided you have not applied the exception before for an income year.

If all conditions above are met:

  • The super income stream is taken to have continued and a new pension is not commenced in the current income year. The proportioning rule does not need to be applied again to determine the tax free and taxable components.
  • If the income stream was in the retirement phase, you can continue to claim a tax exemption for earnings on assets supporting that pension.
  • Payments made during the prior income year are treated as super income stream benefit payments (pension payments) and not super lump sums.
If all conditions above are not met, the super income stream will be treated as having ceased at the start of the income year for income tax purposes. This is heavy stuff so don't miss the minimums. There is always a spike in pension activity at this time of year. Just be careful and note that:
  • Minimum pension payments must be cash flowed and paid from the fund no later than Friday, June 28. Don't make an electronic transfer on that date and expect it to be in time. It is prudent to arrange any required payments at least by Monday, June 24th
  • A pension that is stopped and restarted constitutes a commutation of the old pension. The minimum prorata payment must be made before the commutation.
  • No minimum payments is required, in this financial year, for a pension commenced in June - though a payment may be drawn if the member wishes to.
  • No minimum paymentis required to be met by a deceased member's pension unless the pension is reversionary. Reversionary pensions must still meet the minimum payment requirements
  • Next year the standard minimums will apply so you might consider doubling any monthly payment authorities your clients may have in place.
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