What is a small underpayment of a pension? The ATO are employing a practical approach | Accurium

Where a pension does not meet the minimum pension standards in the SIS Regulations the pension interest will cease at 1 July of that year. However, the Commissioner’s General Powers of Administration (GPA) concession was introduced by the ATO to allow a self-managed superannuation fund (SMSF) to continue a pension and claim ECPI in certain circumstances, even when the minimum pension standards were not met.

Trustees can apply the GPA concession where they failed to pay the minimum pension amount because of an honest mistake resulting in a small underpayment or due to matters outside the control of the trustee. It applies to pensions commenced on or after 1 July 2007.

This concession came as a great relief to many trustees who, due to increases in minimum pension rates since the Global Financial Crisis (GFC), did not meet the minimum standards and were facing the consequences of losing their pension status.

Applying the ‘small underpayment’ in practice

In order for a trustee to self-assess their eligibility to this concession, the ‘small underpayment’ of the minimum pension amount must be no more than 1/12th of the annual minimum pension amount. However, many people want to know if there is flexibility available when applying to the commissioner in writing? Does $1 more than 1/12th exclude the fund from applying this concession?

Well, in short, ‘no’... if the underpayment is small in monetary terms the fund may still be eligible for the GPA concession.

A recent speech[1] from Kasey MacFarlance, Assistant Commissioner for SMSFs at the ATO, identifies that a practical approach is employed when applying ‘the small underpayment resulting from an honest mistake’ criterion. MacFarlance identified that in most cases they would expect a small underpayment to be 1/12th or less, however this is not a hard and fast rule. In particular MacFarlance said:

‘the Commissioner will consider the specific facts of each individual matter and in some cases a small underpayment that is due to an honest mistake and is a bit higher than 1/12th of the minimum annual payment or that is a small amount in absolute dollar terms may satisfy the criterial for exercise of the GPA’

MacFarlance went on to provide an example where an underpayment of $3,000 occurred and the minimum required annual payment was $15,000. She highlighted that although the shortfall is 1/5th of the required amount, this shortfall of $3,000 could still be considered a ‘small underpayment’.

A practical approach is not an instant fix to all pension underpayments

While it has been confirmed the GPA concession may be available to those whose underpayments exceed 1/12th of the minimum, this should not be relied upon as a fix for all pension underpayments. In her speech MacFarlance reinforced that ‘the concession is only available in limited circumstances and is only intended to apply only to ‘one-off’ slip ups or mistakes’. 

As at March 2015[2] the ATO had finalised 242 cases where SMSFs had applied for the GPA concession, and had allowed only 20% of these. The ATO said the 80% that were denied did not demonstrate that factors outside the trustee’s control caused the shortfall in the minimum payment.

Ultimately responsibility lies with the trustee to ensure minimum pension payments are made each year in accordance with the SIS Regulations. However, it is good to know that should a situation outside the trustee’s control lead to a shortfall, a practical approach is taken when assessing a fund’s ability to continue the pension and claim ECPI.

[2] The ATO and SMSFs: an update, 12 March 2015, Matthew Bambrick, Assistant Commissioner, SMSF Segment, Superannuation,


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