It is important for SMSF trustees to ensure their funds do not exceed the newly implemented transfer balance cap (TBC) due to the restricted parameters the ATO has to operate under when enforcing this requirement, the regulator has said.
Speaking at the 2017 Australian Investors Association Conference on the Gold Coast recently, ATO SMSF segment assistant commissioner Kasey Macfarlane told delegates the only real relief trustees had from the enforcement of the cap was in situations where the pension balance breached the limit by $100,000 or less.
“The legislation does actually provide some transitional relief up until 31 December for people who might be in excess of that transfer balance cap by a small amount,” Macfarlane noted.
“So on 1 July if you exceed the cap by $100,000 or less, provided you remove that excess by 31 December 2017, you won’t have to pay excess transfer balance cap tax or account for any notional earnings on that excess.
“Beyond that transitional relief, from the ATO’s perspective the legislation doesn’t actually provide us with any discretion in terms of the imposition of that transfer balance cap tax, so that highlights the fact you need to be aware of your position in relation to the cap.”
She also pointed out trustees had to be mindful of their entire pension position and not just that relating to their SMSF.
“The other thing to remember is it’s a limit that applies to the individual, so it applies to all of their superannuation interests,’ Macfarlane said.
“For example, if someone has a pension they are receiving in an SMSF, and they are also receiving a pension from an APRA (Australian Prudential Regulation Authority)-regulated fund, then the total value of those pensions together can only be $1.6 million.
“So you can’t, for example, start a pension in your SMSF for $1.5 million and have one in an APRA-regulated fund of $800,000 and think they’re both below the $1.6 million cap, so I’m okay.”