Minimum pension drawdown not the only thing to consider as 30 June approaches
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Aaron Dunn, CEO of Smarter SMSF, said on a recent online update that SMSF trustees have to ensure they meet the minimum pension payment obligations as part of their compliance, but noted there are other elements that should also be taken into consideration leading up to the end of the financial year.
Tim Miller, head of technical and education for Smarter SMSF, said that in light of the ATO’s position on not paying the minimum pension requirements, it’s important that SMSF trustees ensure they have done their calculations on the previous 30 June/1 July balances, or commencement balances.
“If you commence during the current year, ensure that you meet that minimum pension obligation prior to 30 June to ensure that the fund firstly meets the standards of having a pension, and secondly, in an account-based pension sense, gets its exempt current pension income deduction,” Miller said.
“[It’s important to] recognise that for account-based pensions there’s no maximum versus say a transition to retirement income stream where there is a maximum. Ensure you at least take out the minimum that’s been calculated on either a full year or a pro rata year basis.”
Dunn said another thing to note at this time of year is how benefits are being taken out, especially where there may be multiple pension strategies, or both pension and accumulation accounts.
“There are some important steps that need to be put in play, in particular where those individuals are taking more out than that minimum for the year,” Dunn said.
“That, arguably, is in light of potentially some of the Division 296 tax measures coming in from 1 July 2026.”
Another element to consider, Miller continued, concerns the transfer balance cap, and whether there is benefit in taking money out as either a pension withdrawal or as a partial commutation from a pension.
“Or if you have an accumulation interest, whether it’s to take a lump sum out of that. It’s not a set-and-forget rule, but one of those areas that people need to look at on a year-by-year basis, as well as from an estate planning point of view, “ Miller said.
“[You should look at] the breakdown, the components of multiple interests, or various interests as to where it might be beneficial to take any amounts over and above that minimum.”
Miller continued that from a TRIS perspective there is “almost nothing ventured, nothing gained” as they are not linked to the general transfer balance cap until the member meets a further condition of release.
“You would primarily start one because you want to draw down income, and by commencing a pension at any point in time, it’ll give you access to that 10 per cent of the account balance,” he said.
“Therefore, if there’s an income need, starting a TRIS at any point could be beneficial. On the flip side, when we look at account-based pensions, one of the critical rules is that if you start on or after 1 June, there’s no minimum pension obligation for that year.
“That means we can trigger the commencement, which will of course trigger a transfer and balance account reporting moment, where we’ll have to provide the report for that June quarter, but it will entitle the fund to ECPI on the earnings that it generates from that date until the 30 June.”
Additionally, Miller said, there is no minimum pension obligation on the drawdown, so you can commence the account-based pension on or after 1 June, get an income tax exemption within the fund, but not draw down on the capital in the sense of drawing the income from the fund for that month.
“There’s a couple of benefits for it and, of course, subject to the fund’s balance and the number of members, you might be able to do asset segregation. So there may be some significant tax benefits, particularly from a CGT point of view, from commencing a pension on 1 July, if you are looking at some form of asset in that final month,” he added.
Dunn emphasised that the 1 June date is important.
“That balance is going to be integral because of the disregarded small fund asset rules, but it does then provide you with that opportunity to look at the tax position in that final month and determine if the fund may realise assets or get a sizable gain that it can exempt through a deemed segregated period in that particular point in time,” he said.
Keeli Cambourne
May 28, 2026
smsfadviser.com
