A superannuation income stream ceases when there is no longer a member who is entitled, or a dependant beneficiary of a member who is automatically entitled, to be paid a superannuation income stream benefit from a superannuation interest that supports a superannuation income stream.
When a superannuation income stream ceases is determined by reference to the particular superannuation funds’ governing rules, the requirements of the SIS Regulations and the facts and circumstances fo the payment of the member’s, or dependant beneficiary’s benefits.
The common circumstances in which a superannuation income stream ceases are outlined below.
Failure to comply with the pension rules – note that if the pension rules are not met and the trustee is taken not to have been paying a superannuation income stream at any time during the income year in which the requirements are not met.
If the requirements are again met in the following year this results in the commencement of a new superannuation income stream.
By operation of the payment standards of the SIS Regulations (e.g., where a death benefit pension is paid to a child of the deceased who attains the age of 25 (unless the child has a relevant disability));
Exhaustion of capital;
Commutation (though not necessarily a partial commutation); or
Death of the relevant member (although note that, from 1 July 2012, the legislation has been amended to allow the pension exemption to continue following the death of a pension member so that the fund can dispose of pension assets on a tax-free basis to pay death benefits as soon as practicable following the member’s death).
Example: Failure to meet minimum annual payment requirement – Cessation of superannuation income stream
John is a member of the KJL Superannuation Fund (an SMSF) and commenced an account based pension in a prior year.
At the start of the 2012/13 year, the trustee of the KJL Superannuation Fund calculates that the minimum annual payment required to be made under Schedules 7 of the SIS Regulations for that year is $1,000, but the trustee only make a single payment to John of $50..
As this amount is less than the minimum annual payment required, the superannuation income stream has not met the requirements of the SIS Regulation for the 2012/13 year, and so the superannuation income stream ceases for income tax purposes a the beginning of this income year ( and the $50 payment is a superannuation lump sum).
This is the case even if John remains entitled to receive a payment for the superannuation fund in relation to the pension under the governing rules of the superannuation fund, or under general trust law concepts, in future years.
If the relevant requirements are complied with in the 2013/14 year, this results in the commencement of a new pension.