With the introduction of the transfer balance cap of $1.6m designed to limit the amount of capital that can be transferred into the tax-exempt retirement phase, certain events that track the movement of capital in and out of retirement phase, as well as other events now must be reported to the ATO to ensure the correct amount is in the transfer balance account.
Pre-existing pensions that members were receiving before 1 July 2017 that they have continued to receive and which are in retirement phase on or after 1 July 2017 should have already been reported to the ATO. In addition, the following common events must now also be reported:
- start of new pensions, which began to be in retirement phase on or after 1 July 2017;
- full and partial commutation of a pension on or after 1 July 2017 regardless of whether or not the commutation was paid out as a lump sum, retained in accumulation phase or rolled over to another super fund;
- certain limited recourse borrowing arrangement (LRBA) payments that result in an increase in value of the interest that supports a member’s pension where the LRBA was entered into on or after 1 July 2017;
- commutations in compliance with a commutation authority issued by the Commissioner; and
- structured settlement contributions.
For those who are beneficiaries of capped defined-benefit income streams, a different approach is taken for reporting commutations and new pensions. If an individual had a capped defined-benefit income stream before 1 July 2017, commuted it in full and started a new market-linked pension, they may exceed their transfer balance cap unintentionally. Therefore, the ATO will not be taking any compliance action if a fund doesn’t report the commutation of the original pension or the start of a new market-linked pension for a limited time. However, the fund is still required to report the pre-existing capped defined-benefit income stream.
So now that you know what needs to be reported, the next question is when or how often you need to report these events to the ATO. This depends on whether your SMSF is on an annual or quarterly cycle and is determined by when the SMSF first starts to have a pension in the retirement phase.
Where each member’s total super balance is under $1m, the SMSF must report transfer balance events annually, usually when the SMSF annual return is due.
If any member has a total super balance of $1m or more, the SMSF must report transfer balance events 28 days after the end of the quarter in which the event occurs by lodging a transfer balance account report. Note, the report only needs to be lodged if there is an event to report, if there isn’t an event, the SMSF isn’t required to lodge a transfer balance account report.
However, if a member has exceeded their transfer balance cap, the trustee must report any commutations earlier (either 10 business days after the end of the month or by a specific date denoted on the commutation authority). In addition, if you’re rolling your pension from an SMSF to an APRA fund, the commutation should be reported as soon as possible to prevent duplication due to different reporting times between APRA and SMSFs.
Do you need a hand?
Running your own SMSF can be a tricky exercise particularly with these new reporting rules. If you are confused or you need someone to help you look over your fund and make sure everything is above board, contact us today.