“It also looks at the cessation circumstances, such as the death of a member, the failure of the pension standards, or commutation, and when an account balance runs out,” he said.

“And as a result of it having been drafted in its final form in 2013, it didn't incorporate many of the 1 July 2017 changes, which naturally included things like the transfer balance cap.”

He said the ATO only finalised the ruling this month so it now addresses all those issues, and although it is not substantially different to its original form, it offers more clarity.

“The one thing that did come into play, and the ATO has explicitly differentiated it here, is the concept of ceasing a pension for income tax purposes, being a tax ruling versus for superannuation purposes,” he said.

“The SMSF Association is going back to the ATO just to seek some clarity around this point.”

He explained that the tax ruling examines situations where a pension might cease – possibly due to failure to withdraw a minimum amount for the year – and considers whether the cessation affects tax status or involves the contractual agreement between the trustee and the member receiving the pension.

“That's a superannuation and trust law issue the ATO has tried to address within this ruling. More specifically, it’s said where there is a situation of failure of the pension occurring, either under the trust law concept or for superannuation purposes, and you are in essence continuing that pension, it will not qualify as a pension in the following year, unless you formally cease that pension,” he said.

“The ATO has not only reflected that in the tax ruling itself, but some of the updated guidance and commentary it has on its website that has been updated post 1 July, also references that to be the case.”

He said there are many opinions in the industry but the ATO is now quite clear on what happens if minimum pension requirements are unmet.

“The ATO is clear on what happens under a tax perspective, but there is a question as to whether if there's a contractual obligation under the deed and the powers of the income stream to continue the pension, doesn't it just continue? You might lose tax exemption in that year, but it would allow it to continue in subsequent years,” he said.

“However, the ATO says quite clearly that is not the case. It states you must formally stop that pension and then recommence it to be able to do that. It also makes it very clear if you fail, for example, transition to retirement income stream, either by a shortfall in the minimum or exceeding the maximum of 10 per cent, there is a cessation of that pension and any of the benefit payments that are taken out will be taxed to the individual at their marginal tax rates with no tax offset.”

Dunn said the literature from the ATO is becoming more deliberate and consistent with some of the other guidance and added that best practice would be to ensure that there is detailed documentation of any decisions made regarding pensions.

“You should go back and look at things like pension documents to make sure that everything is lining up with what the commissioner’s final views are within the tax ruling,” he said.

“Although there isn’t a great deal more in it from what we previously understood, there are a couple of interesting little quirks in there around the concepts of the pension ceasing for tax versus superannuation purposes.”