Warnings to watch pension commencement dates
Advisers should be paying very close attention to the starting dates for pensions, according to Michael Hallinan, special counsel, superannuation, for Townsends Business & Corporate Lawyers.
"The ATO (Australian Taxation Office) has retained its strict adherence to its views as to the 'commencement date' of a pension," he said.
"Advisers will have to liaise with clients in May or June to commence a pension from 1 July, rather than in the following February when the accounts are being done."
"And given the tax significance of pension commencement, specifically with respect to issues such as entitlement to an exempt current pension income 'deduction,' the ATO will be particularly interested that if the pension commences by means of a request from the member, the request is dated on or before the commencement date."
However, Hallinan said that the ATO had softened its requirement as to what constituted a commutation of a pension.
"In the draft ruling, the ATO suggested that only if the annual pension amount was fixed (or determinable) could the pension be commuted," he said.
"The ATO has moved away from this position but has not specified what documentation should be used to commute a pension given that a commutation is the payment of a present lump sum in lieu of future pension payments.
"If a member simply asks for $20,000 from the pension account, is this a commutation or a variation of the drawdown amount?" Hallinan asked.
"Does adding the word 'commutation' to the request get it over the line?"
According to Hallinan, the ruling also raises the question of whether pension switches should be embedded in the governing rules of the fund - so that a pension automatically commences on attaining preservation age or satisfaction of an unrestricted release condition and can be switched off by the trustee simply not making any pension payment.
Originally published by SMSF Essentials.
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