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the member has short paid $3,200 of her required pension. This represents less than 2/12th of the annual amount and the fund has never used the 1/12th allowance in prior years. The trustee has immediately made up the short payment in the current year and states it being an honest mistake due to overseas travel.
Given that the breach is less than $30K, can I use my professional judgement so the fund does not loose the ECPI status for the year with no ACR needed and report not having to be qualified?
The key issue is not to loose the ECPI status for the year
Many thanks
Thanks Toby.
Do we do this via the tax agent portal or it has to be a formal submission?
It's over 1/12 so trustee can't self assess however they can apply to the commissioner for a concession (which if they haven used it before I find the commissioner usually grants)
Toby
Hi Stephen
This question is similar to one asked recently.
If the pension has been underpaid by 2/12th then my view is that the Fund will loses its ECPI status.
It would only not lose the ECPI status if the underpayment was less than 1/12th (& the rules re this are followed). If the pension was underpaid by less than 1/12th and less than $30,000 there would be normally be no requirement to have to qualify your audit report or lodge an ACR.
If the pension has been underpaid by 2/12th the trustee / tax agent could apply to the ATO to treat the minimum pension rules as having still been met & the Fund keep its ECPI status. A good reference re this can be found at:
www.ato.gov.au SMSFs: Minimum pension payment requirements - frequently asked questionsA list of frequently asked questions and examples about the pension payment for self-managed super funds (SMSFs).
Another reference for auditors is Taxation Ruling 2013/5 “Income Tax: when a superannuation income stream commences and ceases.” It can be found at:
https://www.ato.gov.au/law/view/document?docid=TXR/TR20135/NAT/ATO/00001
It is noted that the ATO does allow a small underpayment of a pension and that then the Fund will not lose its tax exempt status. A small underpayment of a pension is when the underpayment does not exceed 1/12th of the minimum annual payment.
The ATO allows this exception if all of the following apply:
“failure to meet the minimum pension requirements was an honest mistake or was outside the control of the trustees
the underpayment is only small (that is, does not exceed one-twelfth of the minimum annual pension payment)
all of the other conditions have been met
the trustee has not previously applied the exception for failing to meet the minimum pension payment requirements.”
Under the 1/12th rule the underpayment must be paid as a catch up payment as soon as possible in the following income year (being within 28 days of being aware of the underpayment).
Another approach that I am aware of in the industry is a lower pension amount is started at the start of the year so that the amount paid covers the minimum pension. This is not ideal as there is TBAR & pension paperwork requirements to consider (& refer to the taxation ruling as noted above re when a superannuation income stream commences and ceases).
As per TR 2013/5 it explains the impact of not having paid the minimum pension:
"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