Presentation slides of webinar presented by Aaron Dunn of The SMSF Academy on the finalisation of tax ruling, TR 2013/5, when a pension commences and ceases.

1. WEBINAR:
TR 2013/5: WHEN A PENSION
COMMENCES AND CEASES
THE IMPACT ON
SMSF PENSIONS
Aaron Dunn
The SMSF Academy
© The SMSF Academy 2013

2. • Attendees are muted for the session
• Presentation slides & tax ruling can be
accessed from the materials tab or URL
link in chat box
• You can type questions to the presenter
from your screen
• Podcast will be made available of all questions
following webinar
• Webinar recording
• Available to SMSF Academy members within
the resource library
• Will be made available to purchase online from
the SMSF Academy website for $55 (incl. GST)
HOUSEKEEPING

3. GENERAL ADVICE WARNING
This presentation provides general advice only. No direct or implicit recommendations are
given in this presentation. This means that the general advice provided has not been
prepared taking into account any individual’s financial circumstances (i.e. investment
objectives, financial situation and particular investment needs).
The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the
time of compilation but does not warrant the accuracy of that information. Save for statutory
liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss
or damage which any person may suffer from reliance on this information or any opinion,
conclusion or recommendation in this presentation whether the loss or damage is caused by
any fault or negligence on the part of presenter or otherwise.
© The SMSF Academy, 2013

4. What is an ‘superannuation income stream’?
‘Income’ + ‘Stream’ given their ordinary meaning
TR 2013/5 states:
Trustee has a liability to make a series of periodic payments that relate to each
other over an identifiable period of time
Need not be
paid at same,
recurring
intervals
Can also
vary in
amount
What does
periodic
payments
mean?
Must meet
pension
requirements
of SIS Reg
1.06(1)

5. Relevance of when a super income
stream commences and ceases?
Proportioning rule
• s.307-125, ITAA 1997
• E.g. applies differently
depending upon lump
sum from income
stream interest or from
interest never
supporting pension
Separate super
interest
• Reg. 307-200.5, ITAR 1997
• Once a pension
commences, an amount
that supports the income
stream is always to be
treated as a separate
super interest
Exempt current
pension income
• Division 295F, ITAA 1997
• In determining if tax
exemption applies, it is
necessary to consider
whether pension benefits
are payable

6. Meet Kerry
The trustees of
her SMSF dispose
of a property
triggering large
capital gain
Kerry receives a monthly pension from her
transition to retirement income stream
Do we have an income stream?



Kerry has been drawing a pension annually
for the past 3 years
Kerry commences a pension to eliminate
the capital gain and rolls back to
accumulation in the following income year

7. Super
income
stream
Each periodic payment made
from a pension account is a
super income stream benefit
(pension) unless an election is
made under regulation 995-
1.03 of ITAR 1997 for amount
not to be treated as an
income stream benefit
Is the payment a super income stream or a lump sum amount?
Super lump sum includes:
• Payment from pension where member elects
before payment is made to not treat as super
income stream benefit; or
• Payment made from super interest that as
ceased to support a pension
Pension payments

8. WHEN DOES A PENSION COMMENCE?
Can never
commence before
all capital has
been added to
support the income
stream
Commencement
date is determined
by reference to
T&Cs of pension,
governing rules & SIS
Regs.
Commencement
can occur before
due date of first
payment, but
cannot precede
member’s date of
request
Pension once
commenced is
always an income
stream until ceased.
Remains true even if
member dies before
payment is due

9. WHEN DOES A
PENSION CEASE?
Failure to
comply with
pension rules
Operation
of the SISR
payment
standards
Exhaustion
of capital Commutation
Death of a
member

10. FAILURE TO COMPLY WITH PENSION RULES
Super Income
Stream
SISR 1.06(1)
SISR 1.06(9A)
SISR 1.07D
=
+
+
Requirements not met
Income stream will have ceased at the
start of the income year for tax purposes
Any withdrawals
are Lump Sums
Failure to meet TRIS
requirements
(under or over payment)
is a big problem!

11. Victor (59) paid an Account Based Pension
Balance of $500,000 at 1 July 2013
ABP has 50% tax-free proportion
Minimum pension of $20,000
Only takes $10,000 for 2013-14 income year
Account balance at 30 June 2014 is $560,000
Pension ceases
at 1 July 2013
for income tax
purposes
$10,000 is
treated as a
lump sum(s)
Loss of ECPI tax
deduction on
income
supporting
pension
New pension
commences 1
July 2014
(TFP now 45%)
If underpayment was
small, SMSF could
self-assess using
Commissioner’s GPA
What is the impact?
Be very careful with
multiple pensions!
Have one pension ‘fall on
the sword’, not both!

12. To ‘commute’ is to change (one kind
of payment) into or for another, as by
substitution
When has there been a full commutation?
COMMUTATION
1
No longer a
liability to
provide super
income stream
benefits
2
Income stream
ceases before
the lump sum
payment is
made (election)
3
As payment is
made after full
commutation,
payment is a
lump sum for tax
purposes
Commissioner
considered facts of
both Hammerton’s &
Cooper’s cases
4
Must meet
SIS Reg 1.07D
requirements on
pro-rata
minimum prior to
commutation

13. PARTIAL COMMUTATION
Conscious decision to exercise right to
exchange an amount (less than entire balance)
from income stream to be paid as a lump sum
As obligation remains to continue to pay pension, partial
commutation does not cease the income stream
If partial commutation
occurs, the resulting
payment is a income
stream benefit for
income tax purposes
Unless, an election is made
under para 995-1.03(b) of
ITAR 1997 not to treat
payment as pension, but
rather a lump sum
Won’t apply to
Transition to Retirement
Income Streams

14. WHEN TO CONSIDER THE ELECTING
TO TAX AS A LUMP SUM?
Under 60
Taxable Income is greater than
$46,110*
Over 60
Minimum is greater than
member requirements (in-
specie asset transfer
* Taxable Income $46,110 - Tax $6,533 + Medicare levy $691 – Pension
offset ($6,916) – LITO ($308) = $0
SMSFD 2013/2:
Does a payment made
as a result of a
commutation of an
account based pension
count towards the
minimum annual pension
amount required to be
paid under SISR 1.06(9A)?

15. DEATH OF A MEMBER
Tax
Dependant
Income
Stream
Does the
pension
automatically
transfer?
How does
the pension
continue?
If allowed
under fund’s
governing rules
Other rules
governing the
income stream
Rules must specify:
• Person to whom the
benefit will become
payable; and
• In the form of an income
stream
(may also specific
class of person, i.e.
spouse)

16. DEATH OF A MEMBER
Pension will cease at death where:
No automatic
entitlement
Where
discretion exists
to pay lump
sum or pension
Timeframe
and
form of
payment
Proportions remain for
non-reversionary
pensions where
alternate method used
per 307-125.02 ITAR 1997
Expanded meaning of
super income stream
extends tax exemption
beyond death of member
(s.295-385 ITAA 1997)

17. 2010 2011 2012 2013 2014
X X X ?
Minimum annual
payment taken
Member dies
SUPER INCOME STREAM STILL PAYABLE?
Based on the member’s entitlement to a series of related
payments over an identifiable period of time, there is a
super income stream in existence up to the time of the
member’s death
Death benefit
paid
Tax exemption continues
No obligation to
withdraw
minimum *
SISR 1.07D(1)(a)
* Assumes no tax dependant beneficiary automatically entitled to income stream

18. Changing Face of SMSFs
• Quarterly Technical & Regulatory
Update
• Included for members
• Non-members: $99 (incl. GST)
– Keep an eye out for special offers!
NEXT WEBINAR
DATE:
Thursday,
22 August 2013
11am, AEDST

19. Podcast created
with webinar
questions in follow
email as well
Follow up email
with survey for your
valuable feedback
Any final questions?
www.thesmsfacademy.com.au/webinar-survey

20. Aaron Dunn
The SMSF Academy
www.thesmsfacademy.com.au
SMSF Dunn Right,
http://thedunnthing.com
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