self managed super: Issue 30

Page 32

COMPLIANCE

Death benefit restrictions

The introduction of the transfer balance cap has increased the complexity of death benefit pensions. John Maroney examines some of the boundaries that now need to be observed upon the death of a member in pension phase.

JOHN MARONEY is chief executive of the SMSF Association.

30 selfmanagedsuper

The introduction of the transfer balance cap (TBC) regime on 1 July 2017 ushered in a raft of super changes affecting SMSFs paying pensions, particularly impacting on a fund’s ability to claim exempt current pension income (ECPI), with one of the most significant changes being the limits it places on death benefits being paid as an income stream. Let me explain. Where an SMSF trustee can cash the deceased member’s benefits as a death benefit pension (DBP), the cashing requirement is continually met so long as the retirement pension income stream (RPIS) continues to be paid. This can be until such time as the pension is exhausted or the beneficiary commutes the income stream and the resulting lump sum is paid out of the super system. This means a DBP: • cannot be rolled back to accumulation, and • cannot be mixed with the beneficiary’s other

superannuation interest(s) at any time. With respect to death benefits, an exception applies from 1 July 2017 to allow the cashing rules to continue to be met where a member opts to roll over a death benefit, including a pension, to a new fund. Provided the death benefit rolled over is not left in the accumulation phase in the new fund and instead is used to fund a death benefit income stream or is cashed out as a lump sum as soon as practicable, the cashing requirements will be met.

Failing pension standards Where a superannuation death benefit is paid as a pension, the ATO view is that the cashing requirement is continually met so long as the retirement-phase pension continues to be paid, as was stated in Law Companion Ruling (LCR) 2017/3: Superannuation death benefits and the transfer balance cap. In accordance with Taxation Ruling


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