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We have a situation where the SMSF we are busy preparing for June 2023 is 100% in pension Phase for both the 2 members. The Trustees are adamant that they processed their pension payment for June 2023 on 30th June 2023 which was a Friday but the transfer out to their personal account only showed up on Monday (3rd July) on the SMSf bank account. The members are happy to sign a stat declaration to the effect that the payment was processed on Friday 30Th as they have no other proof of showing this. Are we able to show this payment as a pension payment and record this as an Outstanding cheque at 30/6/2023 and still treat the SMSF as 100% in pension.
Would that satisfy your audit requirement or is their anything else you would require to satisfy your audit requirements so the fund can remain in pension phase for June 2023.
Hi Nayan,
I feel that an independent person reviewing the circumstances you outline would conclude, on the balance of probabilities, that the trustees did not make the payment on 30 June 2023. In other words, they forgot to make the payment on the Friday and attempted to fix the problem at some time over the next three days, knowing the consequence otherwise would be loss of ECPI for the pension account(s).
If the trustees did attempt to make the payment on 30 June, they would logically have looked for the resulting debit to the SMSF bank account to confirm payment and, identifying that it was not there, would have secured further evidence of their efforts to make the payment, contacted the bank, etc etc.
Any statutory declarations produced by the trustees would be self-serving and of little weight.
The trustees are not the first to have made this expensive error.
Rob Bennett
Hi Nayan
Thanks for the question. I assume the underpaid pension is greater than 1/12th.
My view is that technically you cannot accrue the unpaid pension as at 30 June 2023 by treating it as an unpresented cheque.
The ATO addressed a similar issue at:
The example they use is:
"Example: electronic funds transfer on 30 June falls on a weekend
A trustee arranged for an electronic transfer for the minimum annual pension payment on 30 June, which was on a weekend.
Payment using an electronic funds transfer is made when it is received by the member. Where it is processed overnight or later, the Commissioner’s view is that it is made on or after 1 July in the following income year.
The minimum pension requirement would not be satisfied. The trustee needs to demonstrate that matters outside of their control affected their ability to meet the requirements. Only then can we consider whether the other conditions relevant to the exception can apply.
Where there is a simultaneous debit and credit of the SMSF’s and member's accounts linked at the same institution and the funds are available immediately for use by the member, the pension payment is made on 30 June.
The trustee must provide evidence such as a receipt of the amount into the member’s account to establish the timing of the payment."
That is based on the above ATO example in your example the minimum pension has not been paid by 30 June 2023.
The trustees can write to the ATO and request that the SMSF be treated as having paid the minimum pension in the year ended 30 June 2023. In the same ATO link referred to above it explains how the trustees can apply to the ATO.
If other forum members have a view on this question please let the forum know.
Thanks
The Auditors Institute