Self-managed superannuation funds (SMSFs) are less likely to lose pension exemptions after the Australian Taxation Office (ATO) announced it would not penalise trustees for making an “honest mistake”, according to Nexia Australia.
Nexia’s Sydney superannuation division director Barclay Judge said the ATO Commissioner’s announcement was a “minor win” for the SMSF community.
“If a trustee is away on holidays and forgets to make the regular payment from their SMSF, they will now have the opportunity to make a catch-up payment and continue to qualify for the pension.
“Previously any breach of minimum pension standards meant trustees would no longer be deemed as having paid a pension for the full financial year,” Judge said.
The ATO clarified its position on starting and stopping pension income streams for SMSFs last week. It announced it would exercise discretion if a trustee made a small underpayment due to an “honest mistake” which then resulted in cessation of the pension.
The trustee would need to make a catch-up payment as soon as possible which, if it had been made in the previous year, would fulfill the minimum pension standards, it said.
The ATO defined a “small underpayment” as less than 1/12th of the minimum pension payment due in the relevant year, and said catch-up payments were due within 28 days of becoming aware of a breach.
The SMSF Professionals’ Association of Australia (SPAA) requested final rulings on pension standards be released in August as draft standards had been in play for over a year.
Cavendish Super had warned that underpayments could result in a pension being wound back to accumulation and result in a year’s worth of planning and tax breaks down the drain.