The ATO has said it is unlikely the federal government will review and vary the transfer balance cap [TBC] parameters, particularly in the short term, in response to the economic effects of the coronavirus pandemic.
The explanatory memorandum contained in legislation introducing the TBC in 2017 stated if there was a macroeconomic shock, the government would undertake a review of the retirement-phase limit. It is stipulated that in doing so the government would have to consult with the Council of Financial Regulators and Australian Government Actuaries.
“Any change to the transfer balance cap as it is currently crafted would require legislative change. So it is something that would require the government to make a decision they wanted to pursue,” ATO SMSF segment assistant commissioner Dana Fleming told SMSF Association chief executive John Maroney during a recent recorded interview.
“I think [the government is] probably preoccupied dealing with many other things at the moment. That’s not to say it might not be considered.
“But it will be a bit of a lengthy process I guess if they go down that path because it does have to go by the Council of Financial Regulators, which is comprised of ASIC (Australian Securities and Investments Commission), APRA (Australian Prudential Regulation Authority), the RBA (Reserve Bank of Australia) and the ATO.
“So that’s probably a long-term thought.”
Fleming acknowledged the policing of many of the SMSF compliance requirements is going through an unusual period and as such took the opportunity to warn trustees and their advisers to avoid any TBC problems with reversionary pensions.
“Reversionary pensions are a little bit of a potential trap in that the [associated TBC] credit doesn’t arise until 12 months after the date of death. So if you had a reversionary pension that triggered in April 2019 and the credit is now coming through in April 2020, unfortunately the value is as at April 2019,” she noted.
“So people just need to be conscious that the amount coming through will be potentially a lot higher than [today’s value]. That might mean you have less space in your cap than you’re actually thinking you do.”
She also warned any current pension commutations or adjustments being made would likely result in a lower TBC debit than the trustee might be expecting.
During the same interview, she outlined the ATO’s compliance approach to annual return lodgement deadlines.