Commissioner of Taxation discretion to waive a breach of the minimum pension payment obligation is no longer a reliable course of action for trustees when facing a compliance breach of this nature, an SMSF senior executive has said.
Accurium senior SMSF educator Anthony Cullen noted while he always thought applying for discretion had a low probability of producing the desired result when dealing with a breach of the payment standards, there was evidence in the past that pursuing this path was justifiable.
This approach was mainly considered and employed when the payment shortfall exceeded one-twelfth of the minimum pension amount in question.
“Years ago it almost seemed like everyone got a free pass. You’d write to the ATO for discretion and it would hand it out,” Cullen told delegates at SMSF Professionals Day 2026 held in Brisbane last week.
However, he acknowledged the situation is very different currently and there now is very little likelihood of having an application for ATO discretion yield success.
“Anyone who has tried to apply for discretion recently would probably note getting a favourable outcome is getting harder and harder. You’ve got to have a really good reason why you failed to satisfy the minimum pension,” he pointed out.
“So yes by all means apply for discretion, but hope for the best but prepare for the worst.”
According to Cullen, preparing for the worst in these situations means treating the pension associated with the breach as if it has failed and is required to be commuted, particularly when a response to the request for ATO discretion can take up to nine months to be processed.
“If you are just preparing for a good outcome and the ATO comes back and says [it will not use its discretionary powers], and you’ve done nothing, there’s a whole six to nine months that you could potentially have had a fund receiving ECPI (exempt current pension income),” he explained.
“So prepare for the worst.”