ATO Interpretative Decision
ATO ID 2005/242 (Withdrawn)
Superannuation
Self Managed Superannuation Fund: defined benefit pensionFOI status: may be released
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This ATO ID is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can a taxpayer, a trustee of a self managed superannuation fund (SMSF), pay a new defined benefit pension to an individual under Division 9.2B of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations)?
Decision
No. The taxpayer, a trustee of an SMSF is not able to pay a new defined benefit pension to an individual under Division 9.2B of the SIS Regulations (subject to a transitional provision).
Facts
The SMSF was established before 12 May 2004.
The member and the member's spouse are the sole members of the SMSF.
The fund deed was amended before the transitional period, to allow members to receive a defined benefit pension.
The member's spouse is currently receiving a defined benefit pension.
During the transitional period the member applied for a similar pension to be paid as early as possible, either on her retirement or earlier.
On the same day the fund resolved to pay the pension and do all things necessary to give effect to this resolution including:
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- paying the member an annual pension (the exact amount to be determined by an actuary at commencement), and
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- attend to other matters relevant to the payment of the pension.
The member has not commenced receiving the defined benefit pension.
The member will not attain the age of 65 years during the transitional period.
The member has no intention of retiring during the transitional period.
Reasons for Decision
A self managed superannuation fund (SMSF) may provide a new defined benefit pension if:
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- the SMSF was established before 12 May 2004, and
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- the governing rules of the SMSF have not been amended on or after 12 May 2004 to provide for the payment of the pension.
An SMSF may continue to pay a defined benefit pension where the term of the pension has commenced or where the entitlement to the pension has been established before 12 May 2004, even if the first payment is not made until on or after 12 May 2004.
Further, an amendment to the governing rules relating to the provision of new pensions does not prevent a trustee from paying existing entitlements.
An SMSF cannot provide a new defined benefit pension if:
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- the SMSF was established on or after 12 May 2004, or
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- the governing rules of the SMSF are amended on or after 12 May 2004 to provide for payment of the pension (subject to transitional provisions).
SMSF members may have an established entitlement to receive a defined benefit pension if the explicit terms and conditions of the pension are already contained in the fund governing rules. However, an SMSF cannot provide a defined benefit pension, even if its governing rules allow generally for the payment of defined benefit pensions, if they do not set out the explicit terms and conditions of the defined benefit pension proposed to be paid. A resolution made on or after 12 May 2004, establishing the terms and conditions of the pension, is regarded as an amendment to provide for the payment of the pension.
Where a resolution is made before 12 May 2004, but the resolution did not establish the explicit terms and conditions of the defined benefit pension that is yet to be paid to the member, the pension has not yet been established. Terms and conditions must include at least the amount of the pension.
Accordingly, the taxpayer, a trustee of an SMSF, is not able to pay a new defined benefit pension to an individual under Division 9.2B of the SIS Regulations.
Date of decision: 1 April 2005Year of income: Year ended 30 June 2005
Legislative References:
Superannuation Industry (Supervision) Amendment Regulations 2004 (No 2)
The Regulations
Division 9.2B
Subregulation 9.04F(1)
Related Public Rulings (including Determinations)
Superannuation Determination SD 2004/1
Keywords
Retirement income entities
Self managed superannuation funds
SIS payment standards - trustee obligations
Superannuation
Superannuation provider - defined benefits
ISSN: 1445-2782
| Date: | Version: | |
| 1 April 2005 | Original statement | |
| You are here | 2 December 2011 | Archived |
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