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Hi, have a fund where the major investment is in a related party unit trust, accountant for the SMSF has made an entry in the accounts stating that as the trust has paid money directly to the trustee this can then be taken up via journal in the SMSF as a pension payment. Thoughts on this?
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Hi T
Yes, I am aware of this occurring occasionally in that an accountant will treat a distribution paid by a related trust to a member (rather than to the Fund) as a pension payment made by the Fund.
My view is that technically the minimum pension payment rules have not been complied with (SIS Reg 1.06(9A)) as the pension payments have not been made by the Fund itself.
I do note that the accountant may argue that SMSFD 2007/1 (Self Managed Superannuation Funds: when is a dividend or trust distribution ‘received’ before the end of 30 June 2009 for the purposes of paragraph 71D(d) of the Superannuation Industry (Supervision) Act 1993?) supports their view on the basis that it states:
"25. It is therefore the Commissioner’s view that if an SMSF has requested that a dividend or trust distribution amount be applied or dealt with in some way on its behalf, the SMSF is taken to have received that amount as soon as it has been applied or dealt with as requested. For example, if a dividend or trust distribution amount is to be reinvested in the company or trust respectively, the amount is received by the SMSF when the amount is appropriated for the purchase of additional shares or units, as appropriate. If a dividend or trust distribution amount is to be set-off against a liability owing by the SMSF to the company or trust respectively, the amount is received by the SMSF as soon as the set-off happens."
An approach would be to raise it in your management letter that pension payments must be made by the Fund to the member(s) directly.
It would be great to get other member's views on this query.
Thanks
SMSF AAA