Until now there was a view that:
In light of the ATO's comments, Cleardocs has changed the SMSF trust deed to give the trustee a discretion to pay a benefit as a lump sum (without the need to commence a pension) even if the fund's trustees are individuals.
Funds with members who are close to reaching pension phase (and who might wish to take a lump sum instead of a pension) should consider updating their deed — even if it is just for this reason alone.
However, there is no need to update for this reason if the fund:
Previously, the commonly held view was that the only way for an SMSF with individual trustees to pay benefits as a lump sum was to start a pension and then commute the pension to a lump sum — but first the members had to be paid the minimum amount required to be paid as a pension for the relevant year.
This view was held because for a superannuation fund to qualify as a regulated superannuation fund, its trustee must either be a constitutional corporation, or its governing rules (the trust deed), must provide that the sole or primary purpose of the fund is to provide old-age pensions (as opposed to lump sums) — see section 19(3) of the Superannuation Industry (Supervision) Act 1993 (SISA)
On 8 February 2006, the National Tax Liaison Group Superannuation Sub Committee asked the ATO to clarify the position. Although the ATO fell short of giving a clear endorsement, it stated that:
The ATO also touches on the issue in its recently updated publication Self Managed Superannuation Fundsā?? Role and responsibilities of trustees (NAT 11032-11.2005). The publication states that a fund with individual trustees must state that the fund was established for the sole or primary purpose of providing old age pensions — but the publication also states that this does not prevent the fund from paying lump sum benefits providing the trust deed allows for this.
Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
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