Transfer Balance Account Cap
One of the most talked about changes to superannuation rules from 1 July 2017 was the introduction of the $1.6M Transfer Balance Account cap.
If an individual had more than $1.6M in their pension account as at 30 June 2017, they were required to roll-back the excess to their accumulation account, where the earnings would be taxed at 15% (previously tax free in the pension account). Anyone wishing to commence a pension after 1 July 2017 is limited to transferring a maximum of $1.6M (as indexed) to their pension account.
It is important to note that pension balances are allowed to grow above $1.6M due to earnings and capital growth attributable to a member’s pension account. However, a member’s Transfer Balance Account must never exceed $1.6M (as indexed) or penalties will be imposed.
Event Based Reporting
To monitor a superfund member’s Transfer Balance Account, the ATO have imposed additional reporting obligations known as 'Event Based Reporting'. From 1 July 2018, specific events need to be reported to the ATO on a timely basis. Failure to do so may result in penalties being imposed.
These events include:
- The commencement of a new superannuation income stream (pension)
- Income stream commutations (roll-backs to accumulation account)
- The cessation of a superannuation income stream
- Some limited recourse borrowing arrangement payments
- ATO issued commutation authority notices
- Structured settlement contributions received on or after 1 July 2017 (e.g. contributing the proceeds of certain insurance payouts)
For most SMSFs, these events will need to be reported with 28 days of the quarter end. For example, if a member commences a pension on 1 July, this will need to be reported by 28 October.
The main exception to this is if no member of an SMSF has a total superannuation balance over $1M, in which case the fund only needs to report these events on an annual basis.
Further to this, everyone that was drawing a pension prior to 30 June 2017 must report their pension account balance as at 30 June 2017 to the ATO prior to 30 June 2018.
What does this practically mean?
SMSFs will need to work closely with their advisers to ensure that all relevant events are reported to the ATO in a timely manner. Planning will become more important so that income streams can be commenced and reported in the appropriate quarter to maximise the tax savings that come with commencing a pension.
If you are drawing a pension from your superfund and wish to draw more than the minimum pension amounts required by law, it may be beneficial to commute an amount from your pension account and withdraw from your accumulation account instead. There may be adverse tax implications if you simply increase your pension payments. This should be discussed with your adviser before any lump sums are withdrawn from your superfund.
Your adviser or accountant will generally report the relevant events to the ATO each quarter, by lodging a Transfer Balance Account Report (TBAR).
Please note that the 2018 Federal Budget announcement on 8 May 2018 has introduced further minor proposed changes to the rules around superannuation which will take effect in future years. Make sure you read Peter Ryan’s blog ‘SMSFs – Impacts from the Federal Budget’ for more details.
Make sure you have your SMSF reporting systems in place to meet the ATO deadlines from 1 July 2018. Discuss your requirements with our team at BLG Business Advisers by getting in touch online or calling (02) 4229 2211.