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The ATO has announced the reporting framework on when SMSFs are required to report events to the ATO that affect a member’s transfer balance cap using a transfer balance account report (TBAR).
This reporting is required to assist the ATO to capture information about super amounts moving into and out of pension accounts and enables the ATO to record and track an individual’s transfer balance account across all their super interests and issue excess transfer balance determinations if the cap is exceeded.
What events need to be reported?
An SMSF is only required to report if one of its members has an event that impacts their transfer balance cap.
Common events which will need to be reported include:
- The value of existing pension balances as at 30 June 2017;
- New pension commencements (including death benefit pensions, reversionary pensions and when a TRIS member satisfies a condition of release and the pension converts to an ABP); and
- Full or partial pension commutations.
How can I tell if my clients are affected by these new reporting obligations?
Reporting only applies to SMSFs that have one or more members who are in pension phase and one of those members has an event that affects their transfer balance account.
SMSFs that only have members with accumulation accounts will not have any additional reporting requirements.
How often will event-based reporting be required?
Existing pension balance as at 30 June 2017 must be reported before 1 July 2018.
For events that take place from 1 July 2018:
- Funds with members who have a total super balance of less than $1 million can choose to report on an annual basis, at the same time the SMSF lodges its annual return (generally 15 May each year for Funds with a tax agent and no outstanding lodgements).
- Funds with a member who has a total super balance of $1 million or more will be required to report on a quarterly basis, due 28 days after the end of the quarter.
Events that occur during the 2018 financial year are due at the same time the SMSF’s first TBAR form is due. This is either:
- At the same time they lodge their SMSF annual return – for those reporting annually; or
- On 28 October 2018 – for those reporting quarterly.
Key points to note:
- The SMSF’s reporting framework will be determined using member total super balances as at 30 June IMMEDIATELY BEFORE the first member of the Fund commences their first pension in that SMSF;
- A Fund will not move between annual and quarterly reporting regardless of fluctuations to any of its members’ balances; and
- A member’s total super balance includes ALL their interests (SMSF and non-SMSF).
Benefits of reporting early
Early reporting of events for SMSFs can reduce the following adverse consequences of deferred reporting:
- The member and their advisers will not be able to rely on the information the ATO will display regarding their transfer balance account balance;
- The ATO may issue incorrect excess transfer balance cap determinations, causing additional paperwork for fund members and administrators; and
- The member may pay more excess transfer balance tax, which is subject to tax at 15% or 30% depending on whether it is a first or subsequent breach of their transfer balance cap.
Jeff is the only member of his SMSF and has an existing account based pension as at 30 June 2017 valued at $900,000 which the SMSF reported to the ATO before 30 June 2018.
On 7 August 2018 Jeff decides to roll over his pension, now valued at $800,000 to Sunsuper, and wind up his Fund. As Jeff had a total super balance of less than $1 million as at 30 June 2017, the annual reporting obligation applies. The commutation of Jeff’s pension would need to be reported to the ATO no later than 15 May 2020.
Sunsuper commences Jeff’s new pension in August 2018. APRA regulated funds are required to report monthly, within 10 business days after the end of the month. Therefore, Sunsuper must lodge the new pension commencement by 14 September 2018, 18 months earlier than the due date for the SMSF’s reporting due date for the pension commutation.
Unless the SMSF reports the value of the commutation before Sunsuper reports the pension commencement, the ATO will consider that Jeff has exceeded his transfer balance cap by $100,000 ($900,000 + $800,000 – $1.6 million cap) and will issue Jeff with a determination requiring him to remove the excess capital and the notional earnings from his pension.
In addition, the notional earnings will be taxed at 15% payable by Jeff personally and if Jeff fails to report the pension commutation from his SMSF within 60 days of receiving the determination, Sunsuper will be required to reduce his pension account by the amount specified on the determination.
How will Intello assist advisors to meet event-based reporting requirements?
It is vital that SMSF members and their advisers are in the best position to make informed decisions and to mitigate the risk of exceeding their transfer balance cap and being exposed to an excess transfer balance cap liability.
At Intello, our passion is to empower advisers by providing them with up-to-date and useful information on their clients’ SMSF so that they can make meaningful decisions.
The three key areas we focus on to be able to deliver event-based reporting are:
Here are some links to other Intello blogs on this topic: