Generally, before SMSF trustees pay a member’s super benefits, they need to ensure that:
- the member has reached their preservation age;
- the member has met one of the conditions of release; and
- the governing rules of the fund (e.g., the trust deed) allow it.
Benefit payments to members who have not met a condition of release are not treated as super benefits. Instead, they will be taxed as ordinary income at the member’s marginal tax rate.
If a benefit is unlawfully released, the ATO may apply significant penalties to:
- the SMSF trustee;
- the SMSF; and
- the recipient of the early release.
The ATO may also disqualify the trustee(s) involved.
Investment restrictions and other rules that apply to SMSFs in the accumulation phase continue to apply when members begin receiving a pension from the SMSF.
Where a member has met a condition of release, the trustee can either pay the benefit as a lump sum or super income stream (i.e., a pension). If a member has died, the trustee will generally pay a death benefit to a dependant or other beneficiary of the deceased, subject to the applicable rules.
