A technical expert has suggested advisers and their SMSF clients make an commitment to lodging their transfer balance account reports (TBAR) earlier than required in certain circumstances due to the implementation of indexation on the transfer balance cap.
Accurium head of education Mark Ellem emphasised this is a particularly important consideration for SMSF members who have self-assessed as having to lodge a TBAR annually.
To illustrate this point, Ellem used an example of an SMSF trustee who is an annual TBAR lodger, had an existing account-based pension established before 1 July 2017 valued at $895,000, and who then started a new account-based pension on 23 September 2020 with $80,000 he rolled over from another fund.
In this situation, the commencement of the second pension constitutes transfer balance account activity, meaning a TBAR would have to be lodged for the 2021 financial year. Given the normal course of events, the TBAR must be completed by the time the trustee’s 2020/21 tax return is due.
Effectively this means the TBAR would not need lodging until 16 May 2022, but Ellem pointed out the potential flaws in adhering to this time frame.
“We can see his [transfer balance account] is under $1.6 million so he has got a partial entitlement to indexation, but [this entitlement] is based on his highest transfer balance account [level],” he said during the latest Accurium technical webinar today.
“Now because that event, starting the second pension in September 2020 for $80,000, is not reported before 1 July 2021, that means as far as the ATO is concerned his highest transfer balance account was $895,000 and [it] will base his indexation entitlement on that.
“But that’s not correct. His highest [transfer account] balance is actually $975,000 once the TBAR for the commencement of the second pension for $80,000 is lodged.
“So keep that one in mind, and probably rather than wait until the due date to lodge, lodge earlier or as quickly as possible so that when the ATO calculates that personal transfer balance cap for [the trustee, the correct highest transfer balance account level] is taken into consideration.
“Obviously once it is lodged [the ATO] will adjust its calculation, but [it is] best to have that correct as quickly as possible.”
It has been established that an individual’s entitlement to any indexation of the transfer balance cap will be determined by their highest recorded transfer balance account amount.