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When the trustees fail to meet the minimum pension payment requirement in a given year and the shortfall is more than 1/12th it is stated that the pension income streams ceases to exist and that there is no tax exemptions applicable with the payments deemed to be lump sum payments. Does this mean that the pension balance needs to be commuted to accumulation phase and a new pension commenced in the subsequent year or can they continue to hold the same pension account, deem the payments as lump sum payments and not claim any tax benefits in that year?
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Hi Debbie
Yes if the minimum pension shortfall for a year is greater than 1/12th then no exempt current pension income (ECPI) can be claimed re that pension account.
This also assumes that no application has been made to the ATO for them to treat the account as having met the minimum pension requirements and ECPI being allowed to be claimed.
The ATO ( per "-minimum-pension-payment-requirements---frequently-asked-questions") states that:
“If a fund fails to meet the minimum pension payment requirements in an income year, the super income stream will be taken to have ceased at the start of that income year for income tax purposes.”
The ATO also advises re the TBAR implications in that:
“the trustee must report to us the date that the super income stream ceases to be in the retirement phase for transfer balance cap purposes. This creates a debit in the individual's transfer balance account at that time. The value of that debit is the value of the super interest which that supports the income stream just before it stopped being a super income stream. In most cases, this will not equal the original credit, due to payments made over time”.
The date that the income stream / pension account ceases is normally 30 June (being the last day to pay the minimum pension). The “pension account” becomes a “separate superannuation interest” (tax components remain in this interest).
Any payments made would still be treated as pension payments and if the minimum pension was not paid no ECPI would be claimed in that year. If there is a paperwork done to commute the pension to accumulation mode then this would normally occur at the date of this document (from an accounting & TBAR perspective).
Thanks
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