trustees and their advisers could be in for a rude awakening if pension documents are not created correctly.
Peter Townsend of Townsends Lawyers has said SMSF trustees could find themselves owing the ATO "a lot more money" than anticipated if their pension is not commenced properly. If pension entitlements are not properly in place, Townsend suggested the ATO may believe a retired trustee is still in the accumulation phase and tax accordingly.
“We continue to be surprised by the poor quality of documentation relating to SMSF pensions, including no or defective pension applications and agreements, no or defective trustee minutes and even trust deeds that don’t empower the trustee to pay account-based or transition to retirement pensions,” Townsend said.
Townsend said that, in the quest for lower administration costs, SMSF trustees and their advisers could be using short cuts that product "disastrous" tax consequences.
"The most common error is of course not bothering to check what the trust deed says. As with almost every aspect of the administration of a SMSF, it is crucial to check the trust deed and then follow it to the letter as comprehensively as possible. If there are problems with the contents of the trust deed it may be possible to amend the deed or governing rules," Townsends Lawyers said in a release.
Townsend said it was important trustees ensured the necessary inter-relationship of all their super arrangements.
"Saving money by cutting corners on these documents is a false economy."