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Hi SMSFAAA Team,
I have a fund with two years to audit (2020 & 2021).
The fund was in a TRIS in 2019, but did not take out the minimum for 2020. He turned 65 on 26/1/2021 so on this date it converted to ABP and he has taken enough out.
Can the SMSF account for the minimum not taken in 2020 as a ‘loan repayment’ on his in-house asset loan? Also, can the fund do this for the balance of the loan after it converts to ABP.
Please let me know.
Thank you in advance.
Kind Regards
Hi Jean
I assume the underpayment in 2020/21 was more than 1/12 of the minimum.
A pension payment has to be a cash payment so in my view no ability to do an entry against the loan balance. A lump sum payment can be taken in-specie in the form of an asset transfer.
If possible preferably the Fund would commute the TRIS (or change the amount that was in TRIS) in the year the pension was not paid to the minimum.
Based on the SIS legislation if the minimum pension has not been met the income stream ceases at the start of the year and the payments made in the year are treated as lump sum payments. Hopefully the member has an unrestricted non preserved component to allow the lump sum payments.
There is guidance from the ATO in TR 2013/5 that supports this:
Income tax: when a superannuation income stream commences and ceases
The ruling states:
"Example 6: failure to meet minimum annual payment requirement - cessation of superannuation income stream
42. Bill is a member of the JKL Superannuation Fund (a self managed superannuation fund) and has commenced a superannuation income stream (an account based pension). The minimum annual payments required under clause 1 of Schedule 7 of the SISR 1994 were made to Bill during the 2010-11 and 2011-12 years.[24] At the start of the 2012-13 year the trustee of the JKL Superannuation Fund calculates that the minimum annual payment required to be made under clause 1 of Schedule 7 of the SISR 1994 for that year is $1,000.
43. During the 2012-13 year the trustee of the JKL Superannuation Fund makes a single payment to Bill of $50. As this amount is less than the minimum annual payment required, the superannuation income stream has not met the requirements of the SISR 1994 for the 2012-13 year. The superannuation income stream ceases for income tax purposes at the beginning of this income year, and the $50 payment is a superannuation lump sum.
44. This is the case even if Bill remains entitled to receive a payment from the superannuation fund in relation to the pension under the governing rules of the superannuation fund, or under general trust law concepts, in future years. If the relevant SISR 1994 requirements are again complied with in the 2013-14 year, this results in the commencement of a new pension."
Thanks
SMSF AAA