SMSFs will need to examine if they are required to amend reporting related to a member’s transfer balance account (TBA) where they have commuted a market-linked pension (MLP) that is a capped defined benefit income stream (CDBIS).
The need to re-examine reporting in this area has arisen due to the Treasury Laws Amendment (2019 Measures No 3) Bill passing through the Senate last week, resulting in the ATO reviewing its compliance approach in this area.
To date the ATO has not taken any action, but in an update on its website the regulator pointed out the passing of the bill will change that position.
“As a result of these changes the ATO is reviewing its compliance approach where we had previously advised funds that we would not, at that time, take compliance action if a fund did not report the required transfer balance account events of the commutation and re-start a market-linked pension, or reported a commutation amount other than nil to us,” it said.
“Funds will need to review the information already reported to us and consider whether they need to amend any reporting in line with the legislation.”
It added SMSFs should not be concerned they needed to complete the reporting as soon as possible given they currently had other issues to address.
“Acknowledging the focus funds, trustees, agents and other tax professionals have at this time responding to the government’s stimulus measures and tax time, we intend to provide guidance to trustees and agents in August 2020 regarding the time frame in which we expect any review of the fund’s reporting to be completed and will not take any compliance action against funds who do not review their reporting before this time.”
The bill is still awaiting royal assent, but will provide a new way of calculating the debit in an individual’s TBA when a member commutes an MLP that is a CDBIS, and addresses the issue where the member is entitled to a debit valued at nil after the commutation.
In the update, the ATO stated the new approach will be retrospective to 1 July 2017 and where one of these pensions is commuted in full, the value of the debit will be calculated as the amount of the original transfer balance cap credit in respect of the income stream less the sum of the following amounts:
- the amount of any transfer balance debits (other than a debit arising from a family law income split) in respect of the income stream,
- the total amount of superannuation income stream benefits the person was entitled to receive before the start of the financial year in which the commutation took place, and
- the greater of:
- the sum of the superannuation income stream benefits paid during the financial year in which the commutation takes place, or
- the minimum amount required to be paid under regulations 1.07B and 1.07C of the Superannuation Industry (Supervision) Regulations 1994 or regulation 1.08 of the Retirement Savings Account Regulations 1997 during the financial year in which the commutation takes place.
