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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 Funds‚ 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.
Qualifications: LLB (Hons), BCom, University of Melbourne
Andrew is a Partner in Maddocks Tax and Structuring team. He has significant experience in advising Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
Andrew regularly provides advice on:
His advice covers both direct and indirect tax considerations.
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