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ATO releases pension TBA debit guidelines

pension TBA debit

The ATO has released guidance intended to help funds navigate the new TBA debit calculation for commutations of a market-linked pension.

The ATO has published guidance clarifying how the debit arising in an individual’s transfer balance account (TBA) associated with the commutation of a market-linked pension should be calculated.

The regulator said the guidance would help funds navigate the new TBA debit calculation for commutations of market-linked pensions, which was passed as law during the June parliamentary sitting.

In its guidance the ATO stated it would calculate the value of the debit of the superannuation interest before the full commutation as the the amount of the original transfer balance credit in respect of the superannuation income stream less the sum of the following amounts:

  • the amount of any transfer balance debits (other than a debit arising under item 4 of the table in subsection 294-80(1) of the Income Tax Assessment Act 1997) in respect of the income stream before the commutation
  • the total amount of superannuation income stream benefits the person was entitled to receive before the start of the financial year the commutation takes place
  • the greater of
    • the sum of the superannuation income stream benefits paid during the financial year the commutation takes place
    • the minimum amount required to be paid under regulations 1.07B and 1.07C of SISR or regulation 1.08 of the Retirement Savings Account Regulations 1997 during the financial year the commutation takes.

As a result of the timing of the guidance being introduced, it noted it would not expect funds to commence retrospective reporting in line with the new legislation until November.

“In June 2020 we advised retrospective law had been passed which provided a new way of calculating the debit which arises in an individual’s transfer balance account. This is when a member commutes a market-linked pension which is a capped defined benefit income stream,” it said.

“We have been hearing from funds that calculating the value of the debit retrospectively is challenging. We have published updated guidance on how the value of the debit should be calculated.

“Due to the delay in publishing this guidance, we do not expect any funds to begin to commence their retrospective reporting until November 2020.”

It stated it would provide additional guidance before the end of November regarding when it expected retrospective reporting to be completed by. It also said reporting would not need to be reviewed for deceased members.

In July, the SMSF Association called on the ATO to exercise its regulation-making powers to correct an anomaly that had surfaced due to a technical change to commutations to an income stream from a market-linked pension.

Last week, Heffron technical services manager Leigh Mansell warned SMSF practitioners not to rush into rollovers from a market-linked pension for a client as they might be unable to find somewhere to place the funds or may exceed the transfer balance cap.

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