During end of year planning for self-managed superannuation funds (SMSF) one way to provide distinct value for your SMSF clients is to ensure that they do not become liable to pay any unnecessary tax. However, don’t wait to the last few week sin the lead up to 30 June, regularly reviewing SMSFs with a retirement phase pension member will minimise a potential adverse income tax outcome for the fund and provide time to get things back on track if required.
Some SMSF trustees may be eligible to claim exempt current pension income (ECPI) based on some or all of their assets being in the retirement phase.
From1 July 2017, only retirement phase pensions allow a fund to claim exempt current pension income (ECPI). For SMSFs with a retirement phase account-based pension (ABP), an important pre-requisite for a fund claiming ECPI is for the retirement phase pension to satisfy the minimum pension standards in the relevant financial year. This involves making a pension payment in form and effect based on the age of the pension recipient and the pension account balance at 1 July, no later than 30 June.
Where the ABP commenced during the financial year, the minimum pension payment required will be based on the account balance at commencement and the minimum payment will be pro-rated based on the number of days remaining in the financial year. In addition, if the pension commenced in June, no pension payment is required in that year to meet the pension standards.
The minimum pension payments required by the SIS Regulations are:
| 2021-22 | 2022-23 onwards | |
| Age | Percentage of ABP account balance | Percentage of ABP account balance |
| Under 65 | 2% | 4% |
| 65 to 74 | 2.5% | 5% |
| 75 to 79 | 3% | 6% |
| 80 to 84 | 3.5% | 7% |
| 85 to 89 | 4.5% | 9% |
| 90 to 94 | 5.5% | 11% |
| 95 or more | 7% | 14% |
Remember a pension payment must be physically paid out of the fund – a journal entry is not sufficient.
If the minimum pensions standards are not met for a retirement phase ABP, the ATO may disallow the SMSF’s claim for ECPI in respect of that ABP. This means that the SMSF could potentially have a tax liability or lesser refund than otherwise expected, had the minimum pension been paid.
Whilst it is common to focus on satisfying the minimum pension requirement as 30 June approaches, reviewing SMSFs with a pension at other times during the year will help identify any potential issues and provide plenty of time to get things back on track. Assisting in meeting pension compliance requirements will provide value to your clients’ continued annual service.
How can Accurium help?
Accurium has tools that can assist you and your trustees as they move into retirement. Our pension payment report provides a letter which outlines the pension payment requirements that the fund must meet in order to be eligible to claim ECPI in a financial year.
The report provides you and the trustee with peace of mind that you have the precise information needed to ensure appropriate pension payments are made so that each pension meets the pension standards and your trustees remain eligible to receive the tax benefits to which they are entitled.
