In order to support the introduction of the $1.6m transfer balance cap (TBC) from 1 July 2017, the ATO has announced new reporting obligations for SMSFs.
From 1 July 2018, any SMSF that has a member’s balance with $1 million or more will be required to report events impacting a member’s transfer balance account (TBA) within 28 days after the end of the quarter in which the event occurs.
If the member has a balance of less than $1 million, they will be required to report any events at the time they lodge the funds income tax return.
How are the Events Reported?
The way in which these events will be reported is via a Transfer Balance Account Report (TBAR).
The TBAR is used to capture information about super amounts moving in and out of retirement phase accounts. This enables the ATO to record and track an individual’s balance for both transfer balance cap and total super balance purposes.
It is important to note that a TBA includes information from all of a members superannuation pension accounts, including one from a SMSF, Retail funds, Corporate funds, Public Sector funds, Industry funds, annuity providers and other funds.
All superannuation providers, SMSFs and life insurance companies, with members in retirement phase will be required to complete and lodge this report to the ATO. The ATO will collate the data under the members TFN and make available a consolidated Transfer Balance Account.
What Events need to be Reported?
Events that are required to be reported include:
- Superannuation income streams that commence or begin to be in the retirement phase on or after 1 July 2017
- Commencing a retirement phase income stream (including starting to receive a death benefit income stream)
- Partial and full commutations (whether to an accumulation account, or out of the superannuation system)
- Superannuation income streams that stop being in the retirement phase
- LRBA repayment events
- Compliance with a Commutation Authority issued by the Commissioner
- Personal injury (structured settlement) contributions on or after 1 July 2017
- A commutation of an income stream in response to an Excess Transfer Balance (ETB) Determination issued to a member of a fund by the ATO
- Commutation Authority- compliance or reasons for non-compliance
Income stream value fluctuations, pension drawdowns and the ceasing of a pension (due to no funds remaining) do not affect a member’s TBA and therefore are not events that need to be reported through the TBAR.
Where an income stream is fully or partially commuted, the TBA is reduced (debited) by the value of the commutation.
A member will receive a credit in their TBA where an LRBA:
- was entered into on or after 1 July 2017; and
- a loan repayment shifts value from accumulation phase interests to increase the value of retirement phase interests
Law Companion Guide 2016/9 is currently being updated to include more details about when one of these credits arises and how its value should be calculated.
Structured Settlement Contributions
If the fund receives a payment for a personal injury the member has suffered (structured settlement payment), the members TBA will reduce by the value of the contribution.
Where a members TBC has been exceeded (i.e. over $1.6m), the ATO will issue a commutation authority. The amount specified for the member to commute will represent the value the members TBA will be reduced.
A transitional approach is being used to assist SMSFs to move to an events-based reporting framework. SMSFs will not be required to commence reporting using the TBAR until 1 July 2018, however, TBAR lodgments are available from 1 October 2017, should reporting and lodgment want to be made earlier.
Although SMSFs will not generally need to commence TBAR reporting until 1 July 2018, SMSFs will need to ensure they have appropriately documented pension account valuations and decisions for the 2018 financial year. Until reporting begins, SMSF members must monitor the value of pension accounts they receive to ensure they are not in excess of the TBC from 1 July 2017 onwards.
If a fund does not lodge the TBAR by the required date, the member’s TBA will be adversely affected and as such, the fund may be penalised.
Further information regarding the TBAR and event based reporting can be found here.
Further information regarding a member’s TBA and the debits and credits that affect the account can be found here.
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