According to the ATO, in 2012-13 over 200,000 SMSF’s (45%) reported some portion of exempt current pension income (ECPI)?* This equates to $16.8b of SMSF income exempt from income tax. So there is no doubt that the ATO will want to ensure pension funds satisfy the requirements for ECPI.
Here’s a list of some important DO’S and DON’TS when working on Pension Funds for your clients.
Do
- Check that the member has reached preservation age.
- Remember that from 1 July 2015 the preservation age has increased from 55 to 56
- Check that condition of release for that particular member has been satisfied.
- Calculate the market value of the assets that will support the pension before a pension is commenced.
- Record the commencement of a pension by way of minute or resolution
- Ensure the fund pays the annual minimum pension payment based on the above? amount.
- Ensure an actuarial certificate is obtained before the fund’s annual return is lodged (for funds with both accumulation and pension assets unsegregated).
Don’t
- Don’t inadvertently underpay pensions. The only cases where the ATO may allow for underpayment are:
- an honest mistake made by the trustee resulting in a small underpayment; or
- the trustee is able to demonstrate matters outside of their control.
- Don’t pay pensions by way of “Journal”. Pension payments must actually have received an amount
- Don’t add capital (contributions, rollovers) to a pension once it starts. These will need to be put towards a separate accumulation account for the member