What happens if minimum pension requirements are not met

ATO has clarified what the consequences are if minimum pension payment is not made:

– A pension account ceases form the beginning of the financial year. The payments made already are lump sum withdraws. The SMSF will not be able to claim exempt pension income
– A new pension starts if the minimum pension payment is made in the coming year
– ATO can exercise the discretion to treat the pension as continuing if certain conditions are met (see below)

The conditions for a pension account to continue:
– It is a small underpayment due to an honest mistake. Small underpayment is less than 1/12 of the minimum pension payment.
– Matters outside the trustees’ control
– Catch-up payment made ASAP to meet the minimum pension payment for the prior year. ASAP is within 28 days of the trustees becoming aware of the upderpayment
– The trustees have not previously to request the ATO to exercise their discretion

Even these conditions are not met, you still can send the request to ATO. If approved, it can result in a large tax savings due to the exempt pension income!

For more information, please click TR2011/D3