Page 0
Table of Contents Table of Contents... 1 Key Advice Issues... 2 Outline... 2 Transfer Balance Cap... 2 Why events-based reporting?... 3 Transfer Balance Account... 3 What to report... 3 When to report Annual versus Quarterly... 4 Credit amounts for revisionary beneficiaries... 6 Credit amounts for certain limited recourse borrowing arrangements... 7 When to report earlier... 8 Valuations... 9 Penalties and consequences of late reporting... 10 How to report... 10 Practical considerations... 13 Transfer Balance Account... 14 Transfer Balance Cap Reporting Case Studies... 17 SMSF Transfer Balance Account Reporting Checklist... 21 White Label Document Transfer Balance Cap reporting... 22 TBAR Flowchart... 24 Disclaimer: Technical Papers contain general advice only and are prepared without taking into account particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to the individual circumstances of your client. While the SMSF Association believes that the information provided is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001. Page 1
Key Advice Issues Outline From 1 July 2017 superannuation fund members are subject to a $1.6 million transfer balance which limits the tax exemption for assets funding superannuation pensions. The Transfer Balance Cap (TBC) encompasses a significant amount of monitoring for an individual. This monitoring is to be facilitated by the Australian Taxation Office s (ATO) event-based reporting framework. Event-based reporting, is a significant shift in SMSF administration processes. Therefore, it is essential SMSF specialists, administrators, advisors and trustees understand the event-based reporting framework and get it right. SMSFs that were paying a retirement phase income at 30 June 2017 need to complete and lodge a TBAR on or before 1 July 2018. Reporting requirements commence for all SMSFs from 1 July 2018 where an event that affects their members transfer balances occurs. Transfer Balance Cap The TBC limits the amount of capital an individual can use to start retirement phase income streams from 1 July 2017. This in turn limits a fund s tax-exempt earnings derived by the assets supporting income streams. The TBC for 2017/2018 is $1.6 million and will be subject to indexation in line with the consumer price index in increments of $100,000. If the balance in your account exceeds the cap, you will be required to remove the excess from the retirement phase and may be liable to pay excess transfer balance tax. A common way to remove the excess from your transfer balance, will be to commute in part or in full a superannuation income stream. The excess transfer balance tax rate is set at 15% for an excess transfer balance in 2017 18. From 1 July 2018 onwards, the tax rate is 15% the first time you have an excess transfer balance which increases to 30% if you have an excess transfer balance again. $100,000 concession expired 31 December 2017 Prior to 31 December 2017, if you exceeded your transfer balance cap by $100,000 or less, due to income streams existing on or before 30 June 2017, you could remove the excess without having an excess transfer balance. As this transitional concession has now expired, if you exceed your transfer balance cap by any amount, you will need to remove the excess amount from the retirement phase and report the commutation as debit on your transfer balance account (TBA). If you have an excess balance, you will be liable to pay excess transfer balance tax. Capped defined benefit income streams From 1 July 2017, the defined benefit income cap limits the amount of tax-free income you can receive from a capped defined benefit income stream (pension or annuity). For 2017 18, the defined benefit income cap will be $100,000 (the $1.6 million general transfer balance cap divided by 16). Page 2
Click here to read the Go-To Guide on the $1.6 million Transfer Balance Cap for further information. Why events-based reporting? Event-based reporting is required for individuals and for the ATO to track an individual s TBA across all of their superannuation funds including public offer and defined benefit funds and administer the appropriate consequences if an individual exceeds their cap. This is conducted through Transfer Balance Account Reporting (TBAR). Previously, end of year pension balances only needed to be reported once a year through the SMSF annual return to the ATO. This practice continuing would delay the ability for both the ATO and advisors and their clients to monitor an individual s TBC. Events-based reporting, will allow advisors and their clients the chance to utilise information that is accurate in real time and continue to monitor an individual s TBC to ensure the cap is not breached. It is important to have ongoing conversations with clients to ensure events are reported within the required time limits and to avoid being exposed to an excess TBC liability. We were pleased that the ATO listened to the SMSF Association and industry s feedback regarding event-based reporting and support its final design. Based on the SMSF Association s submission that proposed a $1 million threshold carve out for individuals, the final position by the ATO will reduce the number of individuals that need to report quarterly by approximately 85% based on ATO statistics. This is a large compliance burden that has been reduced for trustees and their advisors and will further help facilitate the successful implementation of TBAR into the future. The ATO have advised that they will continue to review the TBAR regime and the $1 million threshold. We will continue to consult with the ATO to ensure that any changes to the reporting requirements achieve transparency and efficiency. Transfer Balance Account A member will have a transfer balance account on the later of: 1 July 2017 and the day the member first starts to be a retirement phase recipient of a superannuation income stream. If a member is a retirement phase recipient of a superannuation income stream just before 1 July 2017 (at the end of 30 June 2017), their transfer balance account commenced on 1 July 2017. A member will continue to have a transfer balance account even if they subsequently cease to be a retirement phase recipient of a superannuation income stream. A transfer balance account only ceases when a member dies. What to report The transfer balance account operates on the basis of credits counting to increase the cap and debits removing value from the cap. An SMSF is only required to report if one of its members has an event that impacts their TBA. The frequency of reporting will also be dependent on the total superannuation balance of members. Page 3
Credits and Debits for the cap Credits (+) Debits (-) The value of super interest supporting income streams Commutations of superannuation income streams on 30 June 2017 Commencing a retirement phase income stream on or Structured settle payments contributed to after 1 July 2017 (including receiving a death benefit superannuation income stream) The value of reversionary income streams when an individual becomes entitled to them LRBA repayment events where LRBA is held in retirement phase and being paid down with accumulation phase money Notional earnings accruing to excess transfer balance amounts Certain payments arising from family law splits, bankruptcy, fraudulent or void transactions Not required to be reported A TBAR does not need to be reported for the following events: Pension payments (including the age pension and other types of government assistance). Investment earnings/losses. When an income stream is closed, because the interest has been exhausted. Death of a member (although any reversionary income stream following on from the death will need to be reported). Information that individuals report to the ATO directly using a Transfer Balance event notification form. Typically, this is when the following events occur: family law payment split. debit event from fraud, dishonesty, or bankruptcy. Importantly, this means an individual s asset supporting a retirement phase income stream can rise above $1.6 million due to investment earnings and not cause a TBC excess. Alternatively, the reverse is true if investment earnings and pension payments reduce an individual s retirement phase income stream below $1.6 million. The legislation only seeks to track the starting amounts of a retirement phase income stream and events that affect that. When to report Annual versus Quarterly Income streams received on 30 June 2017 If an SMSF member has a pre-existing income stream on 30 June 2017 it must be reported on the TBAR on or before 1 July 2018, even if the SMSF falls within in the $1 million total superannuation balance (TSB) annual reporting carveout. A pre-existing income stream is an income stream the member was receiving on 30 June 2017 that: Continued to be paid to them on or after 1 July 2017, and Is in retirement phase. These events must be reported on or before 1 July 2018. Page 4
Where at least one member of the fund has an income stream just before 1 July 2017, the TSB of members at 30 June 2017 will determine if the fund is required to continue to report quarterly or annually. Where all members have a TSB of less than $1 million as at 30 June 2017, the SMSF will continue to report TBAR events annually. The TBAR reporting requirements are in addition to reporting requirements when lodging the annual return. Where at least one member of the fund has an income stream before 1 July 2017 and at least one member has a TSB of more than $1 million as at 30 June 2017, the SMSF will continue to report TBAR events quarterly. From 1 July 2018 Where a member of the SMSF starts an income stream on or after 1 July 2017, the SMSF annual or quarterly reporting requirements, will be based on the TSB of members as at 30 June in the income year immediately prior to the member starting the income stream. Less than $1 million Where all members of the SMSF have a TSB of less than $1 million on 30 June of the prior income year, the SMSF can report this information at the same time as when its annual return is due. $1 million or more SMSFs that have any members with a TSB of $1 million or more on 30 June of the prior income year must report events affecting members transfer balances within 28 days after the end of the quarter in which the event occurs. The due date for reporting will be the latter of: 28 October 2018, or 28 days after the end of the quarter in which the event occurred. If one or more SMSF members enter into retirement phase for the first time after 1 July 2018, the TSB is determined on the 30 June immediately before the start of an income year, i.e. 30 June 2018. Transition streams received 1 July 2017 to 1 July 2018 For income streams received after 1 July 2017 but before 1 July 2018, there was no requirement to report earlier than 1 July 2018, however the ATO encourages SMSFs to voluntarily report. Where one or more members TSB was over $1 million on 30 June 2017, SMSFs will be required to report quarterly. This is regardless if they wait until 28 October 2018 to commence reporting. Once the reporting framework is set, SMSF trustees will not be expected to move between annual and quarterly reporting due dates, regardless of fluctuations to any of its members' balances. Even if you have annual reporting obligation you should review your balance regularly especially where your superannuation assets are close to the $1.6 million TBC. Page 5
For further information on what is relevant when calculating the total superannuation balance see: Technically Speaking Issue 45: Total Superannuation Balance. Credit amounts for revisionary beneficiaries If you receive an income stream as a reversionary beneficiary, the credit will arise at the end of the period of 12 months beginning on the day the income stream first becomes payable. The day the income stream first becomes payable will be the date of death and the credit will be its value of the superannuation interest that supports the superannuation interest on this day. The reason for the 12 month delay for the transfer balance credit to arise is to give the reversionary beneficiary sufficient time to adjust their superannuation affairs before consequences, such as a breach of their transfer balance cap, takes effect. If the reversionary beneficiary was a retirement phase recipient of the superannuation income stream just before 1 July 2017, the credit arises on the later of 1 July 2017 or 12 months from when the superannuation income stream first became payable. The credit is equal to the value of the superannuation interest supporting that superannuation income stream just before 1 July 2017. Example The Awesome SMSF has two members, Joe and Josephine. Each member has a pre-existing income stream with a total superannuation balance below $1 million and therefore are required to report events to the TBAR annually. Joe has a revisionary pension valued at $900,000 at the time of death on 1 October 2017. Josephine is Joe s wife and is the revisionary beneficiary of this pension. A credit arises in Josephine's transfer balance account on 1 October 2018 (12 months from the starting date). The credit amount is $900,000, which is equal to the value of the superannuation interest on the starting day being 1 October 2017. As the Awesome SMSF is an annual reporter, the credit for the report for the TBAR should be lodged when the fund also lodges its annual return for the 2018-19 financial year. It is important to note that, while the credit that arises for a dependent beneficiary in receipt of a reversionary capped defined benefit income stream is delayed for 12 months, the income tax consequence of receiving defined benefit income is not delayed. For further information on death benefits and the transfer balance cap see: Law Companion Ruling 2017/3 - Superannuation reform: Superannuation death benefits and the transfer balance cap Law Companion Ruling 2016/10 - Superannuation reform: capped defined benefit income streams - non commutable, lifetime pensions and lifetime annuities Page 6
Credit amounts for certain limited recourse borrowing arrangements For SMSFs, the outstanding balance of a relevant limited recourse borrowing arrangement (LRBA) will be included in a member's TBAR for an LRBA that was entered into on or after 1 July 2017. Repayments of a relevant LRBA from a member's accumulation account that result in an increase in the value of a retirement phase account will become credits for Transfer Balance Account purposes. The TBAR does not make it clear that repayments only need to be reported for LRBAs entered into on or after 1 July 2017. You do not need to enter all LRBA repayments here. Only include repayments for LRBA entered into on or after 1 July 2017. For further information on what is relevant when calculating credit amounts for certain LRBAs see: Technically Speaking Issue 44: Limited Recourse Borrowing Arrangement Credits under the Transfer Balance Cap. The SMSF Association sees this occurring only when trustees are using some form of segregation. Notably funds which place LRBAs in retirement phase and retain cash in accumulation phase will be directly affected. Page 7
When to report earlier Compulsory reports The following events must be reported sooner, regardless if the fund is on an annual or quarterly reporting stream: a voluntary member commutation of an income steam in response to an excess transfer balance determination must be reported within 10 business days after the end of the month in which the commutation occurs. responses to commutation authorities issued by the ATO must be reported within 60 days of the date the commutation authority was issued. Voluntary reports In some scenarios the ATO may not know the ETB is incorrect until the SMSF reports annually. In such cases the ATO may issue an ETB, which may result in increased taxes and administration costs for the fund. If an incorrect ETB is issued, trustees must notify the ATO as soon as possible. In these scenarios it is encouraged to report events earlier, to avoid double counting of income streams As APRA funds have a monthly reporting regime, a double counting of income streams may occur where a member rolls their super benefit into an APRA-regulated fund and starts and income stream. In these situations, it is important to report the commutation as it occurs or no later than the time of the rollover. Where the transitional rules apply and an SMSF member was in excess of their transfer balance cap at 1 July 2017 and rectified it by 31 December 2017, this should have been reported at the time of the commutation. Example On 30 June 2017 Harris, a member of Amazing SMSF, has a pre-existing income stream valued at $900,000, which his SMSF reported to the ATO on 1 July 2018. The SMSF is locked into the annual reporting regime as at 30 June 2017 it did not have any members with a TSB over $1 million. On 18 August 2018, Harris rolls over his interest, now valued at $800,000 to an APRA fund and starts a new income stream on the same day. Unless the trustee of Amazing SMSF reports the value of the commutation that occurred prior to Harris rolling over his interest to the APRA fund, the trustee of the APRA fund will report the credit arising from the new income stream before Amazing SMSF is required to lodge the TBAR to advise the ATO of the debit. The ATO will consider that Harris has exceeded his transfer balance cap by $100,000 and issue him with an ETB determination. Transfer Balance Account Date Description Date reported Debit Credit Transfer balance 30 June 2017 1 July 2018 $900,000 $900,000 18 August 2018 10 Sept 2018 (APRA) $800,000 $1.7 million 18 August 2018 Commutation from SMSF Oct 2019 $800,000 $900,000 Page 8
Valuations Special value of a superannuation interest If a pension or annuity from a life expectancy or market linked product (a caped defined benefit income stream in retirement phase just before 1 July 2017) is payable to a member, a credit will arise in the transfer balance account. The value of these income streams is treated differently as amounts generally cannot be removed from these income streams. Therefore, the credit equals the special value of the superannuation interest that supports a superannuation income stream. The special value of a market linked pension is determined by multiplying the annual entitlement by the number of years remaining on the term of the product (as rounded up to a full year). For income streams before 1 July 2017 this date will be 30/06/2017 Enter the special value not the market value If you only receive capped defined benefit income streams, you will not have an excess transfer balance where the special value of the capped defined benefit exceeds the transfer balance cap. However, where the capped defined benefit income stream is above the capped defined benefit cap (currently $100,000) you may have income tax consequences. Valuation Guidelines For quarterly reporters the commencement of a retirement phase income stream will need to be reported to the ATO 28 days after the end of the quarter in which the income stream commenced. For the common 1 July pension commencement, this will mean that the commencement of the pension will need to be reported by 28 October. As SMSFs generally align the valuation of their assets with the completion of the fund s end of year financial accounts, it is very possible that funds will not know the exact value of their income stream by this date. This is further exacerbated by the fact that taxation statements, valuations and SMSF documentation are not usually received by advisors by this date. The ATO has stated that SMSFs should continue to apply the ATO s valuation guidelines for SMSFs. Consistent with these guidelines, The ATO would accept a reasonable estimate of the starting value of a retirement superannuation income stream. This value should be recorded in the fund s accounting reports and in the TBAR. A valuation is generally considered fair and reasonable when: It takes into account all relevant factors and considerations likely to affect the value of the asset. It has been undertaken in good faith. It uses a rational and reasoned process. It is capable of explanation to a third party. If these factors are satisfied, the ATO will accept the valuations of retirement phase income streams. Page 9
For more information, visit the ATO s webpage: Valuation guidelines for self-managed superannuation funds. Penalties and consequences of late reporting The ATO have advised that their focus leading up to and after 1 July 2018 is to support SMSFs and their advisers to prepare for reporting on the transfer balance cap and help them understand how to report these events. In the future, an SMSF may be subject to compliance action and penalties. The ATO have advised that they don't intend to deny ECPI claims if an SMSF does not report their transfer balance cap on time. How to report SMSFs will have three channels available them: Bulk data exchange. An online form. A paper form. Intermediaries will be able to lodge the TBAR electronically via a portal where data will be prepared and stored. A separate TBAR must be lodged for events impacting each member of a fund. A maximum of four events can be reported for a member. Multiple TBARs will need to be lodged if there are more than four events to report. Section D of the report outlines how to complete the form and which question needs to be answered. Do not report more than one event in Section D1. For example if you need to report two events for a member you will need to fill out sections D1 and D2. Page 10
Example 1 pre-existing income stream Ruth is the sole member and trustee of her SMSF, Diamond Sparkle Super Fund. Ruth is receiving two retirement phase superannuation income streams, which commenced prior to 1 July 2017. The value of the income streams is $400,000 and $500,000 respectively. The Diamond Sparkle Super Fund waits until after its financial accounts have been completed before separately reporting 30 June 2017 (to show each income stream was a pre-existing income stream) and value at just before 1 July 2017 of each income stream on or before 1 July 2018. This events will be reported separately at question 13, using Section D1 and D2. Tick box and complete questions 17-24 As the income stream started prior to 1 July 2017 then enter 30/06/2017 Enter the value of $400,000. The second income stream of $500,000 will be reported at D2 Example 2 New income stream and member commutation Brenton commences a retirement income stream on 20 December 2018 valued at $500,000 and commutes $100,000 back to accumulation account on 20 February 2019. The income stream is an account based pension. Page 11
As the income stream started after 1 July 2017 select this event and go to question 13. Select super income stream and go to event details The effective date is the date the income stream started on 20 December 2018 and the value is $500,000 at this date. The commutation can be reported on the same report, as the event is that of the same member. The details of the event will be completed in section D2. Correcting a report To correct information already reported to the ATO, a superannuation provider must cancel the original TBAR and then lodge a separate TBAR with the correct information. This will allow the ATO to identify the event which has been lodged in error. For further information on how to lodge see the Super Transfer balance account report instructions visit the ATO s webpage: Super Transfer balance account report instructions. Page 12
Practical considerations Create processes to deal with common industry practices. Determine how pension minimum payments and commutations are to be tracked. Consider software administration solutions. Ensure unique pension numbers across all superannuation accounts. Prepare for quarterly reporting with interim financials and data. Open up communications with trustees early. Notably, only 48% of SMSFs are in retirement phase and therefore event-based reporting will not affect everyone initially. However, this does not mean that appropriate systems do not need to be rolled out across firms as soon as possible. The notion that individuals will start one pension and have it in place until death meaning there would only be two reportable events throughout their lifetime is idealistic. Accordingly, all affected parties need to come to an understanding of the practical implications of the regime to ensure a seamless transition. Advisors will need to create processes to practically deal with the common industry practices that occur in the administration of SMSFs. For example, SMSF members who draw more than their minimum pension may want to categorise withdrawals above the minimum pension amount as pension commutations in order to generate TBC debits. This will dramatically increase the number of reportable events an individual may have, so not only will opening up communication channels between clients and advisors will be crucial but the creation of effective and useful pension documents to supplement this is important. Another common practice is to commute and recommence pensions at the start of every financial year to incorporate any additional contributions that have been made during the year. Therefore, despite a member having one pension throughout their life, they still will have additional reportable TBAR events (i.e. a debit on commuting the pension and a credit when recommencing it). The reporting aspect of this process will need to be incorporated into this practice. All parties need to be aware that individuals commonly have more than one income stream for a variety of good reasons. This will further add to the complexity in data monitoring and ATO systems with advisor and industry practices needing to adapt to ensure this is accounted for in the new world. It is therefore best practice to ensure that each member and income stream has their own unique account number so advisors and members are clear about reporting when an event occurs. Advisors will also need to be aware of all their client s superannuation accounts for the purposes of TBC monitoring. With up to date data, fund members and their advisers will be able to make more timely and accurate decisions and avoid instances of incorrect excess pension determinations being issued by the ATO. This is especially important for funds that are on the quarterly reporting regime. For example, advisors will need to know all asset values within 28 days of the end of the quarter including bank accounts, share prices, managed fund unit prices and dividends and distributions to accurately reflect TBAR events. The advent of transfer balance reporting tools and software administration solutions will also be essential to the effective management of peoples transfer balance caps. We are already aware of software administration solutions providing the ability to lodge TBARs through their systems allowing individuals to lodge multiple member data records in bulk to the ATO. Page 13
Transfer Balance Account Members will be able to view their transfer balance account via mygov. Advisors and tax agents will need to rely on their client s providing their mygov information via printouts or download options. MyGov will help members monitor the transfer balance cap and will also display the available cap space as follows. Where a member has exceeded their transfer balance cap the available cap space will be zero. Page 14
Where the ATO has issued a commutation authority, this will also be displayed on the TBA Where a member has a transfer balance tax liability this will be displayed on the TBA, with an option for payment. Page 15
Debits and credit transactions will be displayed as follows: Page 16
Transfer Balance Cap Reporting Case Studies Transitional 2017-18 year - adverse member consequences Amy has the following retirement phase income stream events: On 1 August 2017, Amy commences a $1 million income stream with Confidence SMSF. On 1 August 2017, Amy also commences an $800,000 income stream with Balance Fund (APRA fund). On 10 December 2017, the Balance Fund reports Amy s $800,000 income stream commencement through the TBAR in line with APRA reporting obligations. On 1 July 2018, the Confidence Super Fund reports the commencement of Amy s $1 million income stream through the TBAR. Consequences: On 1 July 2018, the information reported to the ATO shows that Amy has a transfer balance account of $1.8 million and has exceeded her cap. On 5 July 2018, the ATO make an Excess Transfer Balance (ETB) Determination which crystallises the amount that Amy will need to remove from retirement phase. Amy will need to remove the excess capital and the notional earnings that accrued between 1 August 2017 and 5 July 2018. Amy rectifies this breach on 18 July 2018 by commuting her income stream in the Confidence SMSF Confidence SMSF must report this commutation within 10 business days of the end of July 2018. As Amy has been in excess of her cap since 1 August 2017, excess transfer balance tax will be calculated on the notional earnings that accrued between 1 August 2017 and when the breach was rectified on 18 July 2018. If the Confidence Fund had reported the commencement of this income stream earlier, Amy would not have had to remove as much from retirement phase; and would have paid less tax. It would be in Amy s best interests to have commuted $200,000 as soon as becoming aware of an excess rather than waiting for an ATO determination. As stated, it is not required for you to report transfer balance cap events before 1 July 2018 but individuals who have exceeded their TBC and have reported events late or where more frequent reporting from other providers such as APRA funds occur, it may be in the best interests to mitigate the risk of an excess determination and report as early as possible. Post 1 July 2018 quarterly reporting Judy and Peter are members of the Basil SMSF. Judy commences a retirement income stream in the fund valued at $1.2 million and Peter commences a retirement income stream in the fund valued at $900,000. As the Basil SMSF has one member with a total superannuation balance of more than $1 million, the SMSF must report events affecting both Judy and Peter s transfer balances within 28 days after the end of the quarter in which the event occurs. Assets supporting pension streams grows to exceed $1 million Audra, has a total superannuation balance of $900,000 as at 30 June 2017, and has a pre-existing income stream valued at $900,000. She continues to make contributions and, as at 30 June 2018, her superannuation balance is $1.2 million. On Page 17
1 July 2018, she commutes a new income stream valued at $1.2 million. Audra will need to report the pre-existing income stream before 1 July 2018. As she has a balance of less than $1 million, she will have annual reporting obligations. Despite the value of her super balance increasing to $1.2 million, Audra will continue events on an annual basis. Therefore, she will need to report the new income stream no later than the due date of the SMSF annual return. Post 1 July 2018 Reporting a debit Alex is a member and trustee of the Monarch SMSF. On 1 July 2019, Alex commences a retirement income stream in the fund, valued at $1.2 million. On 20 April 2020, Alex leaves the Monarch SMSF and rolls the value of his income stream to a new SMSF. The value of his income stream at the time of rolling over is $1 million. The Monarch SMSF will need to report: The commencement date (1 July 2019) and value ($1.2 million) of Alex s income stream within 28 days after the end of October 2019. The date (20 April 2020) and value ($1 million) of Alex s commutation within 28 days after the end of June 2020. Tick and go to question 13 Tick and go to event details 1 July 2019 Value as at 1 July 2019 $1.2 million Page 18
Tick and go to question 14 Tick and go to event details 20 April 2020 Value as at April 2020 $1 million Post 1 July 2018 Reversionary income streams Richard and Maria are members of the Grow SMSF and each commence a retirement income stream on 1 July 2018, valued at $1.3 million each. Richard passes away on 1 November 2019 and his remaining retirement phase benefits are paid to Maria as a reversionary pension. The following actions need to be reported: The commencement date and value of each retirement income stream commenced within 28 days after the end of July quarter. The commencement date (12 months from date of death) and value of the reversionary income stream (date of death) no later than 28 January 2021. Reversionary income streams do not count towards the TBC until 12 months after the death of the member in order to give individuals time to get their affairs in order and reduce any amount of the income stream that may cause them to exceed their TBC. In this scenario, Maria may need to commute amounts from her TBA in the 12 months period as to not cause an excess when the reversionary benefit counts towards her TBC. This will need to occur before the TBC credit for the reversionary benefit occurs. Example of how debits and credits are tracked Kay currently receives an account-based income stream from Basic Super Fund. On 30 June 2017 her income stream is valued at $1.2 million. Page 19
On 1 February 2018, Kay decides to roll her income stream over to the Advanced Super Fund. The Basic Super Fund actions her request on 5 February 2018. The Advanced Super Fund starts Kay s income stream on the same date. Due to investment growth, the income stream is valued at $1.3 million on 5 February 2018. Reporting events: The Basic Super Fund will report the 30 June value of Kay s income stream as $1.2 million. The Basic Super Fund will report Kay s voluntary commutation of $1.3 million with an effective date of 5 February 2018. The Advanced Super Fund will report the commencement of Kay s income stream as a retirement phase income stream commencing on or after 1 July 2017. Transfer Balance Account Date Description Debit Credit Transfer balance 30 June 2017 Pre-existing stream 5 February 2018 Commutation from Basic Super Fund 5 February 2018 Commencement in Advanced Super Fund $1.2 million $1.2 million $1.3 million -$100,000 $1.3 million $1.2 million Page 20
SMSF Transfer Balance Account Reporting Checklist Will the fund member have a superannuation income stream in existence on 30 June 2017, that continues to be paid to them on or after 1 July 2017, and the member is in retirement phase? Will the fund have a reporting event including, new retirement phase income streams, certain limited recourse borrowing arrangement payments, personal injury (structured settlement) contributions or commutation of retirement streams? Does one or more fund members have a total superannuation balance of $1 million or more and have an event which is required to be reported quarterly? Does the trustee have accurate and up-to-date valuations? Is the Trustee ready to report events quarterly by 28 October or 28 days after the end of the quarter in which the event occurred? Does a member also have an APRA fund, and is planning to commute? The Trustee should report this event at the time of the commute to avoid double counting. Is a member in excess of their Transfer Balance Cap? Trustee will need to issue an ETB determination to the member and commute an income stream. The event needs to be reported on the TBAR within 10 business days after the end of the month in which the commutation occurs. Where ATO issues a commutation authority, this needs to be reported on the TBAR within 60 days of the date the commutation authority issued. If you do not commute the required amount by the due date, the income stream will stop being in the retirement phase and this will affect entitlement to exempt current pension income. This is not an exhaustive checklist. Other issues that may need to be considered when reporting events to the TBAR. Page 21
White Label Document Transfer Balance Cap reporting Click here to download the Transfer Balance Cap white label in word document format. Transfer Balance Cap reporting what does it mean for you? From 1 July 2017, superannuation fund members are subject to a $1.6 million transfer balance cap (TBC) which limits the tax exemption for assets funding superannuation pensions. The TBC encompasses a significant amount of monitoring for an individual. This monitoring is to be facilitated by the Australian Taxation Office s (ATO) event-based reporting framework. Event-based reporting is a significant shift in SMSF administration processes. Therefore, it is essential SMSF trustees understand the event-based reporting framework and get it right. Why events-based reporting? Event-based reporting is required for the ATO to track an individual s transfer balance account across all their funds including public offer and defined benefit funds and administer the appropriate consequences if an individual exceeds their cap. An SMSF is only required to report if one of its members has an event that impacts their transfer balance account, such as the ones listed below. From 1 July 2018, timeframes for reporting are determined by the total superannuation balances of the SMSF s members: where all members of the SMSF have a total superannuation balance of less than $1 million, the SMSF can report this information at the same time as when its annual return is due. SMSFs that have any members with a total superannuation balance of $1 million or more must report events affecting members transfer balances within 28 days after the end of the quarter in which the event occurs. What needs to be reported? An SMSF must report events that affect a member s transfer balance account, including: Income streams a member was receiving on 30 June 2017 that continued to be paid to them on or after 1 July 2017 and are in retirement phase. New retirement phase income streams. Some limited recourse borrowing arrangement payments. Compliance with a commutation authority issued by the Commissioner. Commutations of retirement phase income streams. All SMSFs that were paying a retirement phase income stream at 30 June 2017 need to complete and lodge a TBAR on or before 1 July 2018 to report the balance of each pension individually, for each member as at 30 June 2017. An SMSF is required to report earlier if a member has exceeded their transfer balance cap, regardless if it usually reports annually. Page 22
Roll-over to an APRA fund If you are going to roll over a super benefit into an APRA-regulate fund and start an income stream you are encouraged to report the communication as soon as it occurs. As APRA-regulated funds have a monthly reporting regime, waiting to report the roll-over can result in a doublecounting of the member s income streams. How can we help? If you are concerned that your SMSF will be affected by the new pension reporting requirements, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail. Page 23
TBAR Flowchart