TAXATION LAW & PRACTICE

Taxation Law & Practice

Taxation Law & Practice

Question 1

A trustee inadvertently fails to make the minimum pension payment the fund will not have met the pension standards and the exempt current pension deduction (i.e. the tax exempt status) will not apply. The ordinary income and statutory income of a complying superannuation fund from income tax to the extent it is attributable to its liability to pay current pensions. The exemption applies to the provision of a superannuation income stream benefit as defined for the purposes of the ITAA 1997. An account based pension (both commutable and non-commutable) is a form of a superannuation income stream that is prescribed for the purposes of section 295-385 of the ITAA 1997 and regulation 295-385.01 of the Income Tax Assessment Regulations 1997. Regulation 1.06 of the SIS Regulations provides the standards that must be met for a benefit to be taken to be a pension. For a pension to meet these standards the pension rules must ensure a payment is made at least annually and in accordance with the minimum and maximum pension amounts specified in regulation 1.06 of the SIS Regulations.

For the pension rules to meet this standard they must meet the requirements in both form and effect. It is not enough for the rules of the pension to state that a payment will be made in each year if the payment for a particular year is not actually made. Where a trustee does not pay the pension benefits as required by the SIS Regulations, the payment will not be regarded as a superannuation income stream benefit for the purposes of the ITAA 1997 and the fund will not be entitled to the exemption for income relating to their current pension liabilities.

There is no scope within subregulation 1.06(9A) of the SIS Regulations whereby the definition of a pension would be met if a pension payment was made in the following year. The definition of a pension will only be satisfied where the total payments in any year meet the SIS Regulation standards.

Accordingly, there is no discretion afforded to the Commissioner to allow him to correct a fund's tax liability, or the non-payment of a pension. Regarding a Transition to Retirement pension income stream; if the fund has paid money out to a member, the amount did not meet the minimum payment standards and the preservation status of the member's benefit is such that no commutation can be made (i.e. the member's benefit is preserved), the payment will be considered ordinary income to the member and taxed at their marginal tax rate, with no 15% superannuation tax offset.

A number of taxpayers in the retail and wholesale industries who value their trading stock on hand at cost have not previously determined the cost under the absorption costing methodology as described below. Where this has occurred, tax officers should allow those taxpayers to include the appropriate figure as at 30 June 2004 in their income tax return for the year ended ...