Uncertainty surrounding draft ATO ruling
A draft pensions ruling released by the Australian Taxation Office (ATO) gives little to no certainty as to when a pension stops and starts, according to Graeme Colley, SMSF Professionals' Association of Australia (SPAA) Director - Education and Professional Standards.
For Colley, while Draft Taxation Ruling 2011/D3 has been subject to continued negotiation, SPAA was eagerly awaiting publication of the final ruling due to the significant impact it may have on those that "are not doing the right thing in the eyes of the Tax Commissioner".
"The negotiations that have been going on mean that the delay in issuing the final version has not helped those affected by the ruling," he said. "It would be good to see the final version published as soon as possible so that the relevant adjustments can be made if required."
According to SPAA, the ATO's draft ruling needed to clarify the date of effect; commutation of the superannuation income stream and the different treatment of current pension assets in the case of full or partial commutation; notification of when a pension starts; the implications of pension entitlements on the death of a primary or reversionary pensioner as well as issues surrounding the notification of a pensioner's death; and implications surrounding breaches of the preservation rules if the income stream does not meet the requirements of the SIS legislation.
"Most of us think we know what the SIS legislation says by working out the balance of the member's benefit and then working out the minimum amount," Colley said. "In the case of a transition to retirement pension, the maximum permitted payment is also important in complying with the SIS legislation.
"However, you need to consider the impact of the SIS definition of an account-based pension," he continued. "When is a pension transferrable and what is the impact on the death of a primary or reversionary pensioner?
"Also, there are a number of minimum requirements to be met by a superannuation income stream to ensure any income and capital gains on investments used to support the pension remains tax-free," Colley said.
He added that cessation of an income stream was just as important as when an income stream starts.
"In addition to the rules concerning commutation, if a lump sum is payable on the death of the member, it must also be determined when the pension has come to an end," Colley said. "This may occur at the time of death; however, in many cases notification may not occur until well after the member's death."
Recommended for you
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
The second tranche of DBFO reforms has received strong support from superannuation funds and insurers, with a new class of advisers aimed to support Australians with their retirement planning.
