Missing the Minimum Pension: When an SMSF Pension Stops and How to Restart It

Aditi Sarkar

29 October 2026 09:03 PM AEDT

Missing the Minimum Pension: When an SMSF Pension Stops and How to Restart It

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Highlights

Under TR 2013/5, missing the minimum pension payment causes the pension to cease as at 1 July of the affected year.
The SMSF Association and four other bodies disputed this position in a letter to the ATO on 15 October 2024.
The ATO exception allows self-assessment on a first honest-mistake shortfall of no more than one-twelfth of the annual minimum.
A shortfall can be caught up within approximately 28 days; a second occurrence requires a written application to the ATO.

Missing the minimum annual pension payment from an SMSF carries a strict consequence under the ATO's ruling: the pension is treated as having ceased on 1 July of the year in which the shortfall occurred. Understanding the exception and the catch-up window is essential for affected trustees and members.

The Ruling and the Dispute

Taxation Ruling TR 2013/5, as updated by addendum TR 2013/5A1 on 26 June 2024, sets out the ATO's position that failure to pay the minimum pension amount in a financial year causes the pension to cease from 1 July of that year. This means the fund loses the tax exemption on earnings supporting the pension from the beginning of the year, not just from the point of the shortfall.

The SMSF Association, along with four other professional bodies, wrote to the ATO on 15 October 2024 disputing whether this outcome is the correct legal interpretation. The letter challenged the ruling's position on when a pension ceases. The ATO has maintained its ruling, so practitioners and trustees operate within the existing framework while the debate continues.

The ATO Exception for Honest Mistakes

The ATO provides an exception for trustees who fall short of the minimum due to an honest mistake where the shortfall does not exceed one-twelfth of the full annual minimum pension amount. On a first occurrence, trustees can self-assess and catch up the shortfall, typically within approximately 28 days of identifying it, without needing ATO approval.

If the same issue arises a second time, the trustee must write to the ATO seeking the same treatment rather than self-assessing. The ATO then determines whether to apply the exception. The exception is not automatic on a second occurrence and trustees should not assume it will be granted.

FAQs

Q: What happens if an SMSF fails to pay the minimum pension in a financial year?

A: Under TR 2013/5, the pension ceases as at 1 July of that financial year. The fund loses the tax exemption on earnings attributed to that pension from the start of the year.

Q: Is there any way to avoid the pension ceasing after a shortfall?

A: Yes. The ATO provides an exception for shortfalls not exceeding one-twelfth of the annual minimum that arise from an honest mistake. A first occurrence can be self-assessed and caught up within approximately 28 days.

Q: What must a trustee do if a minimum pension shortfall happens a second time?

A: On a second occurrence, the trustee must write to the ATO requesting that the exception apply. Self-assessment is not available for a second shortfall.

Q: Has the ATO's position on pension cessation been formally challenged?

A: Yes. The SMSF Association and four other bodies wrote to the ATO on 15 October 2024 disputing the ruling's interpretation. The ATO has maintained its position in TR 2013/5.

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