Some legacy pensions paid out of an SMSF have a specific set of PAYG requirements, which the tax office has grown concerned about.
The pensions, known as defined benefit income streams, are particularly complex to understand, and often require professional guidance.
Because of their complexity, some SMSF members have inadvertently broken or skirted their obligations.
“Individuals aged 60 years old or over or receiving a reversionary defined benefit income stream and the deceased died at 60 years old or over, whose income from their capped defined benefit income stream exceeds $100,000 per annum, may have additional tax liabilities,” explained Heffron SMSF Solutions head of SMSF technical & education services Lyn Formica.
“For example, for pensions paid from a taxed source, which includes all SMSFs and virtually any other superannuation fund except certain public sector schemes, 50 per cent of their annual income stream amount over the defined benefit income cap will be taxed at their marginal rate,” she said.
To stay above board, and in order to allow the ATO to identify the individuals subject to this additional tax, a superannuation fund must issue a Payment Summary to any individual receiving a capped defined benefit pension if the individual is aged 60. They must do the same if the individual is under age 60 but is receiving a reversionary pension, and the deceased died age 60 or over.
For more on this complex matter and how it may apply to your SMSF, click here.