The ATO has recently made its intentions clear when it comes to super fund members who fail to comply with income stream rules relating to funds in pension mode.

Do you need to take action?

Read this advice from our resident Superannuation expert, Sonja Rubinstein, to see if you need to take action.

If you have a Superannuation fund in pension mode it is important to make sure you draw the appropriate income stream by June 30th 2013 to avoid paying additional tax.  This applies to both those with a self-managed super fund and those who are members of an industry super fund or a retail fund.

Failure to comply could result in the following adverse circumstances:

• If the minimum pension payment is not met, the fund is not paying an income stream
• The account will become an accumulation account from the start of the financial year or from the start of the pension if started mid year
• The fund will be in accumulation mode for the whole of the financial year
• Pension payments will be considered to be lump sums
• The fund will not be entitled to treat income or capital gains as Exempt Current Pension Income for the year
• The fund will be taxed at the fund tax rate of 15%
• If Transition To Retirement Pension (TTR) – the preservations rules have been breached.  A TTR cannot pay a lump sum only an income stream.
• In addition to the extra tax, the breach would also be brought to the ATO’s attention by the lodgement of an Auditor Contravention Report.

Where the trustee makes payments that exceed the maximum 10% pension drawdown in a TTR Pension

• The maximum pension payment standard is not met; the fund is not paying an income stream.
• The account will become an accumulation account from the start of the financial year or from the start of the pension if started mid year.
• The fund will not be entitled to treat income or capital gains as Exempt Current Pension Income for the year.
• The earnings will be taxed at the fund tax rate of 15%.
• Pension payments received by the member will not considered pension payments and  therefore taxed at the members Marginal Tax Rate (MTR) with no tax-free amount and no 15% tax offset on the Taxable component.
• Unless the member has unrestricted non-preserved monies in the fund, there is also a breach of the Preservation rules.
• In addition to the extra tax, the breach would also be brought to the ATO’s attention by the lodgement of an Auditor Contravention Report.