Income streams can be either account-based or non account-based. However, there are very limited circumstances in which SMSFs can pay non-account-based pensions to members.
Account-based income streams have the following general characteristics:
- they require a minimum annual payment to be made
- the account balance cannot be added to by a contribution or roll-over
- if the member dies, they cannot be paid to a non-dependent beneficiary.
Transition-to-retirement account-based income streams need to meet the standards of ordinary account-based income streams. Additionally, there is a maximum annual payment limit of 10% of the account balance. These income streams can only be commuted to cash in limited circumstances.
Income streams and transition-to-retirement income streams that started before 1 July 2007 and complied with the rules applicable at the time are deemed to satisfy the new requirements and may continue to be paid under the former rules.
Before starting to pay any income stream, you need to know the rules and possible seek the advice of a professional.
PAYG withholding and administrative obligations
You may have to withhold tax from benefit payments. This happens if the payment is to a member who is:
- under 60 years old
- 60 years old or over if the benefit is from an untaxed source.
If you have to withhold tax from a benefit payment to a member, you need to:
- register for pay as you go (PAYG) withholding
- obtain a Tax file number declaration (NAT 3092) from the member
- issue a PAYG payment summary form to the member
- lodge a PAYG withholding payment summary statement (NAT 3447) with the ATO.