PCG 2019/7: Compliance approach for large APRA-regulated superannuation funds in respect of pension tax bonuses not included in members' opening account balances on commencement of a pension
Document type: Final PCG
Status: Current
Date of issue: 2 October 2019
Date of effect: 1 July 2017

1. This Guideline provides a transitional compliance approach for large Australian Prudential Regulation Authority (APRA) regulated superannuation funds that provide a pension tax bonus to members where the superannuation funds are facing practical difficulties in complying with certain legislative requirements.

Scope: 3. This Guideline will apply to a large APRA-regulated superannuation fund that: 4. For the purposes of this Guideline, a pension tax bonus is a payment made by the superannuation fund to its member where: 5. This Guideline does not apply to self-managed superannuation funds and small APRA funds.

6. A superannuation fund may account for deferred tax liabilities attributable to members who hold a superannuation interest that is in the accumulation phase. When the member commences an RP superannuation income stream, the superannuation fund may recognise a reduction in the fund's deferred tax liability as attributable to that member. This is due to the operation of the exempt current pension income provisions as set out in Subdivision 295-F of the ITAA 1997. In this situation, the superannuation fund may pay a pension tax bonus to the member. 7. A pension [2] is a superannuation income stream where it satisfies the requirements of subregulation 1.06(1) of the SISR. [3] One of these requirements is that specified minimum annual pension payments are made. [4] When a pension is commenced, the member's pension account balance on commencement day must be determined for the purposes of calculating those required minimum pension payment amounts. [5] 8. Where the superannuation fund agrees to pay the pension tax bonus into the superannuation interest supporting the RP superannuation income stream at the commencement of the income stream, the value of the pension tax bonus needs to be taken into account in determining the member's pension account balance to ensure that the required minimum pension payments are made. A consequence of not doing so is that it is possible that the superannuation fund will not pay the required minimum annual pension payment, resulting in the trustee being taken not to have paid an RP superannuation income stream to the member in the relevant income year. [6] This would consequently impact the superannuation fund's calculation of its exempt current pension income. 9. The important feature is that the superannuation fund agrees to pay the pension tax bonus, including by way of a credit or additional units or other form of augmentation, from the day the RP superannuation income stream commences. The fact that a superannuation fund, due to system constraints, may credit this amount to the member's superannuation interest after the commencement of the RP superannuation income stream does not alter the requirement to recognise the value of the credit in determining the member's pension account balance for the purposes of calculating the required minimum pension amount. 10. Further, for the purposes of the transfer balance cap regime, the member will have a transfer balance credit equal to the value of the superannuation interest that supports the RP superannuation income stream on the day that the superannuation income stream commences. [7] Accordingly, the amount of the transfer balance credit will incorporate the value of the pension tax bonus as part of the value of the superannuation interest. 11. We recognise that some superannuation funds that wish to provide pension tax bonuses to members may need to modify existing systems to ensure full automation, and integration with core processing and integrity controls with respect to having the value of the pension tax bonus correctly reflected in the member's pension account balance.

Intro: This Practical Compliance Guideline sets out a practical administration approach to assist taxpayers in complying with relevant tax laws. Provided you follow this Guideline in good faith, the Commissioner will administer the law in accordance with this approach.




What this Guideline is about | Who this Guideline applies to | The ATO's transitional compliance approach | Date of effect: 2. This Guideline applies from 1 July 2017 to 30 June 2020. | The ATO's transitional compliance approach: 12. Where a superannuation fund satisfies all of the conditions set out in paragraph 13 of this Guideline, the ATO will not allocate compliance resources to review the calculation of the superannuation fund's exempt current pension income under Subdivision 295-F of the ITAA 1997 as a result of the superannuation fund not incorporating the value of the pension tax bonus into the member's pension account balance when calculating the required minimum pension payments. | Commissioner of Taxation 2 October 2019 | Previously released in draft format as PCG 2019/D2

Related rulings and determinations: TR 2013/5
Legislative references: ITAA 1997 ITAA 1997 294-25(1) ITAA 1997 Subdiv 295-F ITAA 1997 307-80 ITAR 1997 ITAR 1997 995-1.01 SISA SISA 10 SISR SISR 1.06(1) SISR 1.06(9A) SISR Sch 7 cl 1
Other references: PCG 2018/2