It is critical that pension members make their minimum pension payments for the year in order to retain pension status in that year. A question that has often arisen is are the pension payment received, for the purpose of the minimum pension payment standards, when a cheque is honored by the bank, or when it is received by the member.
The ATO has released a determination SMSFD 2011/1 that addresses when a cheque or promissory note is actually received by a member.
The ruling indicates that it is ‘cashed’ if:
• at that time, money is payable immediately and available for payment;
• the trustee takes all reasonable steps to ensure that the money is paid promptly;
• the money is paid; and
• the requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR) are otherwise satisfied.
Example - Payment using a cheque
Karlie is a member of the Black Rock SMSF based on Asburton, Vic. As at 30 June 2011, financial year 1, the Black Rock SMSF is required to make a benefit payment to Karlie of $15,000.
The trustee writes a cheque for $15,000. Karlie receives the cheque on 30 June, financial year 1, but does not present it for payment until 5 July 2011, financial year 2. The cheque is subsequently honoured.
The benefit was cashed on 30 June 2011, financial year 1 when Karlie received the cheque. Objectively, the trustee intended to transfer funds from the SMSF to Karlie at that time by issuing the cheque and money was paid promptly.
This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. Hillier Riches are local SMSF accounting specialists who provide accounting services to SMSF clients and businesses in Asburton.