The State Technical Days held by the SMSF Professionals’ Association of Australia (SPAA) has highlighted that the draft pensions ruling released by the Australian Tax Office (ATO) still leaves open a Pandora’s Box on when a pension stops and starts.
Graeme Colley, SPAA Director – Education and Professional Standards, said 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.”
He said that 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.”
Clarification in the draft needs to include:
- 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.
Colley said it was critical in considering the ruling about beginning and ending a pension to understand what was meant by a superannuation income stream.
“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.
“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 says.
Colley said cessation of an income stream was just as important as when an income stream 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.”