Q: My wife and I are both over 70 and are the only members of our SMSF. On 30 June, my wife had a nil balance in our SMSF but will make a $300,000 non-concessional contribution in July and commence an account-based pension at the 5% rate. Does her nil balance in the previous financial year predetermine the amount of pension she is permitted to take, from an ATO perspective?
A: Some issues to consider here. Remember, the pension standards say that the minimum pension must be paid each year and it’s based on the member’s age on the date the pension starts, and the amount used to commence that pension.
You mentioned you have an SMSF. For an SMSF, your pension will begin when all things necessary in your trust deed for a pension to exist are seen too. Usually from SMSF, it would be the date the trustees sign off on the pension application, which would pretty much be the same day the pension application is logged. Just check that with your fund. It’s
the age at which your wife starts the pension and her pension balance on that date. The nil balance from the prior year would not usually affect any pension payments this year. It’s the start date of the pension, the age of the person on that date, and the opening and the pension balance at that date, which is used to determine how much they have to take out.
Now, when it comes to SMSFs and new member balances, I just have to throw a couple of other regulatory comments in. Check your fund trust deed around when someone becomes a member. For instance, my old SMSF trust deed required a member to apply and be accepted by the trustees to be a member. It didn’t say anything about having a balance. Other trust deeds might say you only become a member when you have a balance in the fund. Please just check that because the ATO may query why there’s a member with a new balance where it’s for a longer period of time. They’re looking to make sure the fund was set up properly. Was there an intention for them to ever make a contribution, and whether those super laws are being complied with. Again, what your wife’s age is on the day the pension starts and the amount that she uses to start the pension is how you will determine the minimum pension balance.