The ATO’s draft pensions ruling still leaves open a “Pandora’s Box” of dangers for SMSF trustees, claims the SPAA.
The draft pensions ruling released by the Australian Tax Office (ATO) still leaves open a “Pandora’s Box” of dangers for SMSF trustees, claims the Self Managed Super Fund Professionals’ Association of Australia (SPAA).
The issue that has yet to be resolved, said SPAA director of education and professional standards Graeme Colley, is the issue of when a pension stops and starts.
He added that the publication of the final ruling was eagerly awaited due to the significant impact it may have on funds that “are not doing the right thing in the eyes of the Tax Commissioner”.
According to Colley, the Draft Tax Ruling (2011/D3) was issued just over a year ago and the delay in publishing the final version was due to continued negotiation on some wide-ranging implications announced in the draft.
“The negotiations that have been going on mean that the delay in issuing the final version has not helped those affected by the ruling. It would be good to see the final version published as soon as possible so that the relevant adjustments can be made if required,” he said.
The SPAA has called for the following clarifications to be made:
The date of effect of the ruling (the draft proposes that any change is to apply from I July 2007).
Commutation of the superannuation income stream and the different treatment of current pension assets in the case of full or partial commutation.
Notification of when a pension starts.
The implications of pension entitlements on the death of a primary or reversionary pensioner as well as issues surrounding the notification of a pensioner’s death.
Implications surrounding breaches of the preservation rules if the income stream does not meet the requirements of the SIS legislation.
“Most of us think we know what the SIS legislation says by working out the balance of the member’s benefit and then working out the minimum amount. In the case of a transition to retirement pension the maximum permitted payment is also important in complying with the SIS legislation,” said Colley.
“However, you need to consider the impact of the SIS definition of an account-based pension. When is a pension transferrable and what is the impact on the death of a primary or reversionary pensioner?
“Also, there are a number of minimum requirements to be met by a superannuation income stream to ensure any income and capital gains on investments used to support the pension remain tax free.”
He added that the cessation of an income stream was just as important as when it starts.
“In addition to the rules concerning commutation, if a lump sum is payable on the death of the member, it must also be determined when the pension has come to an end. This may occur at the time of death; however, in many cases notification may not occur until well after the member’s death.”
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