The issue of when to report the materialisation of a reversionary pension upon an SMSF member’s death is causing confusion among trustees with a misconception a 12-month time frame applies to the reporting of the event, a technical services team has observed.
“The common statement we get is ‘well, we don’t have to do this until 12 months after the anniversary date of the deceased’. That’s not true. You have to report this by the applicable reporting date,” SuperConcepts technical services and education general manager Peter Burgess told delegates at the recent SMSF Professionals Day 2019, co-hosted by selfmanagedsuper and SuperConcepts, in Sydney.
“So if the fund is reporting quarterly, the trustee would have to report the event 28 days after the quarter in which the member died, not 12 months after the death.”
SuperConcepts SMSF technical services executive manager Mark Ellem noted this may not be a straightforward compliance obligation for advisers, accountants or fund administrators to adhere to on behalf of their clients.
“The problem is you don’t necessarily get told straight away or become aware straight away of this situation happening,” Ellem noted.
He added in many cases practitioners may not be informed of the materialisation of a reversionary pension until close to 12 months after the member’s death.
This may lead to a notional assessment from the ATO that could result in an additional tax liability for the fund, he warned.
He emphasised reporting the reversionary pension event in the right manner will ensure the ATO correctly recognises the transfer balance account treatment for the reversionary beneficiary.
“Ticking the reversionary income stream box under question 13 in the transfer balance account report will trigger the ATO to ensure that transfer balance account credit doesn’t arise until 12 months after the date of the event and that the value of the pension will be its value at the date of death,” he said.