Issue
Can a taxpayer, a trustee of a self managed superannuation fund (SMSF), pay a new defined benefit pension to an individual under Division 9.2B of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations)?
Decision
No. The taxpayer, a trustee of an SMSF is not able to pay a new defined benefit pension to an individual under Division 9.2B of the SIS Regulations (subject to a transitional provision).
Facts
The SMSF was established before 12 May 2004.
The member and the member's spouse are the sole members of the SMSF.
The fund deed was amended before the transitional period, to allow members to receive a defined benefit pension.
The member's spouse is currently receiving a defined benefit pension.
During the transitional period the member applied for a similar pension to be paid as early as possible, either on her retirement or earlier.
On the same day the fund resolved to pay the pension and do all things necessary to give effect to this resolution including: • paying the member an annual pension (the exact amount to be determined by an actuary at commencement), and • attend to other matters relevant to the payment of the pension.
The member has not commenced receiving the defined benefit pension.
The member will not attain the age of 65 years during the transitional period.
The member has no intention of retiring during the transitional period.
Reasons for Decision
A self managed superannuation fund (SMSF) may provide a new defined benefit pension if: • the SMSF was established before 12 May 2004, and • the governing rules of the SMSF have not been amended on or after 12 May 2004 to provide for the payment of the pension.
An SMSF may continue to pay a defined benefit pension where the term of the pension has commenced or where the entitlement to the pension has been established before 12 May 2004, even if the first payment is not made until on or after 12 May 2004.
Further, an amendment to the governing rules relating to the provision of new pensions does not prevent a trustee from paying existing entitlements.
An SMSF cannot provide a new defined benefit pension if: • the SMSF was established on or after 12 May 2004, or • the governing rules of the SMSF are amended on or after 12 May 2004 to provide for payment of the pension (subject to transitional provisions).
SMSF members may have an established entitlement to receive a defined benefit pension if the explicit terms and conditions of the pension are already contained in the fund governing rules. However, an SMSF cannot provide a defined benefit pension, even if its governing rules allow generally for the payment of defined benefit pensions, if they do not set out the explicit terms and conditions of the defined benefit pension proposed to be paid. A resolution made on or after 12 May 2004, establishing the terms and conditions of the pension, is regarded as an amendment to provide for the payment of the pension.
Where a resolution is made before 12 May 2004, but the resolution did not establish the explicit terms and conditions of the defined benefit pension that is yet to be paid to the member, the pension has not yet been established. Terms and conditions must include at least the amount of the pension.
Accordingly, the taxpayer, a trustee of an SMSF, is not able to pay a new defined benefit pension to an individual under Division 9.2B of the SIS Regulations.