Hi Yuvraj

The normal approach is that a pension has to be physically paid to be treated as a pension payment.

This query has been raised recently and ATO ID 2015/23 has been referred to.

The ID states:

"It is well-established at common law that a 'payment' of money can be effected by way of agreed set-off between two parties, where those parties each have a presently existing liability or legal obligation to the other for a certain monetary amount immediately payable, and they agree to set off the liabilities against each other. In such circumstances, journal entries in the books of account of the parties to the transaction may record the payment of money from one party to the other by the agreed set-off. There does not have to be an actual exchange of monies between the parties in such circumstances. This general law principle of payment by 'set-off' has its foundation in the case of Re Harmony and Montague Tin & Copper Mining (1873) LR 8 Ch App 407 (Spargo's case)."

That is if there is a liability to pay a loan and a liability to pay a pension then there can be an "agreed set-off" between the 2 parties. That is a pension amount can be taken up as a journal entry rather than as a cash payment.

My view remains that if a trustee wants to journal a pension payment (rather than a cash payment) they should request approval from the ATO.

If any forum members have a view please let the forum know.

Thanks

The Auditors Institute