UPDATE

ATO approve $1 million threshold carve out
SMSFs that have no members with a total superannuation balance (TSB) of $1 million or more will be able to report TBC transactions annually in line with current processes. This is a permanent carve-out for all SMSFs which meet this condition. The ATO have agreed with our position that individuals who are no risk of breaching the $1.6 million TBC should not be forced into a regular reporting framework. See here for more detail from ATO

I am getting many questions about the workings of the Transfer Balance Account Report (TBAR), Transfer Balance Cap (TBC) and Total Super Balance (TSB). So, in this 3-part series I will explain each one for you starting with your Transfer Balance Account Report. Most of this material is sourced from various ATO webpages and collated here for your guidance with my commentary.

So what is in your transfer balance account (TBA)?

There has always been a problem with the data available to the ATO in terms of how much people have in different phases of superannuation throughout the year with the ATO often having to wait until a few months after the end of the year for APRA fund reporting and nearly 11 months for SMSF data to flow through.

The transfer balance account is a new method designed by the ATO of tracking transactions and amounts in retirement phase. The balance of your transfer balance account determines whether you have space under your cap or if you have exceeded your transfer balance cap at the end of any given day. The transfer balance cap is a limit on the amount you can hold in retirement phase ($1.6 million in 2017–18).

You will start to have a transfer balance account on:

• 1 July 2017, if you are already receiving a retirement phase income stream at the end of 30 June 2017, or
• the day you first commence receiving a retirement phase income stream.

It is important to understand that this TBA includes information from all your superannuation pension accounts via SMSF, Retail, Employer, Industry funds, annuity providers and other funds. It is on a consolidated basis and not per account.

All super providers, including self-managed super funds (SMSFs) and life insurance companies, with members in retirement phase will be required to complete and lodge this report to the ATO. The ATO will collate the data under your TFN and make available your consolidated Transfer Balance Account to you and your advisers.

Your transfer balance account measures your transfer balance, which is the sum of credits less the sum of debits posted to the account.

Now if you are like me then you tend to get totally confused when it comes to what is a debit and what is a credit so let’s take a refresher

My short code is “C+ and D-“ Credit = an addition to your total balance and Debit = a lowering of your total balance

It might be good to clear up some confusion by stating upfront that these events are not reportable.

Events that do not need to be reported include:

• pension payments
• investment earnings and losses
• when an income stream is closed because the interest has been exhausted.

These are Credits to your account

Credits to your transfer balance account increase your transfer balance and reduce your available cap space. The most common transfer balance credit arises when you begin receiving a super income stream (pension) that is in the retirement phase.

The following amounts are credits to your account:

• the total value of any super interests that support retirement phase income streams you are receiving on 30 June 2017
• the value of new retirement phase income streams, including super death benefit income streams and deferred super income streams, that you begin to receive on or after 1 July 2017
• the value of reversionary super income streams at the time you become entitled to them (although the timing of the credit may differ in certain circumstances)
• the excess transfer balance earnings that accrue on any excess transfer balance amount you have.

For a capped defined benefit income stream, the credits above are calculated on the special value of the income stream.

The Treasury Laws Amendment (2017 Measures No.2) Bill 2017 provides for an additional credit where a super fund makes a payment towards a limited recourse borrowing arrangement. This payment increases the value of retirement phase interests.

The value of your super interests will be calculated by your super fund(s) accountant or administrator and notified to the ATO.

These are Debits to your account

Debits to your transfer balance account may:

• reduce your excess transfer balance, and/or
• increase your available cap space.

Events that cause your account to be debited include commutations, structured settlement contributions, and certain other events that cause a change in the value of your retirement phase interests.

Commutations

When a super income stream is fully or partially commuted, your transfer balance account is debited by the value commuted. The debit arises when you receive the lump sum, and applies whether you choose to transfer the lump sum to an accumulation account or withdraw it from super.

You must commute an income stream before you can roll it over to another fund.

Pension payments from your retirement phase account(s) are not commutations and are not debited from your transfer balance account.

Structured settlement contributions

A debit arises for a structured settlement that you receive (as payment for a personal injury you have suffered) and contribute towards your accumulation or retirement phase super interests.

Events resulting in a reduction of your super interest

You may be entitled to a debit in your transfer balance account if you lose some or all of the value of your super interests through events such as fraud, dishonesty, or void transactions under the Bankruptcy Act 1966.

Commutation authorities

The ATO may issue a commutation authority to super providers where a member has exceeded their transfer balance cap. A commutation authority will detail the amount that must be commuted for that member.

Payment split upon divorce or relationship breakdown

Super interests may be split as part of the division of property following a divorce or relationship breakdown. One party (the member spouse) will be required to provide a proportion of their retirement phase super interest(s) to the other party (the non-member spouse).

For either spouse, the debit arises either when the payment split becomes operative (under the Family Law Act 1975) or when they start to have a transfer balance account (whichever is later).

Failure to comply with pension or annuity standards

If your super fund fails to comply with the rules or standards for your income stream, that income stream may cease to meet the definition of a ‘superannuation income stream’. This means it will no longer be eligible for the earnings tax exemption.

The most common situation is where the super fund fails to pay the minimum pension amount required for a financial year under the regulatory rules. If this occurs, for transfer balance cap purposes, the income stream is taken to have stopped meeting the definition at the end of that financial year.

The debit equals the value of your income stream just before it stops meeting the definition. The debit arises in your transfer balance account when the income stream stops meeting the definition. This debit means you will be able to fully commute the income stream, and start a new one that complies with the pension or annuity standards, without breaching your transfer balance cap.

Self-managed super fund (SMSF) reporting

The ATO recognises that this is a major change for SMSFs so as a transitional concession, SMSFs will generally not need to commence reporting using the TBAR until 1 July 2018. The ATO is still currently consulting with industry on the model of event based reporting to apply from 1 July 2018.

TBAR lodgment is available from 1 October 2017 and submitted forms will be accepted from that time onwards if the choice is made to lodge earlier.

You should be talking to your Advisers, Accountants or Administrators to see how they plan to manage your reporting. If you have only been seeing them once a year then you may need to work out a solution for a quarterly update if you are in or near pension phase. You will need your various advisers to work as a team going forward to avoid late reporting. See Are your accountant, lawyer and financial planner working as a team for your benefit?

The general exception to starting to report on 1 July 2018 does not apply:

• if the ATO have issued an Excess Transfer Balance (ETB) Determination to a member because they have exceeded their cap and they choose to commute an income stream in their SMSF. Where this applies, the SMSF must report the commutation within 10 business days after the end of the month in which it occurred to avoid a commutation authority being issued. If the member chooses to commute an income stream the SMSF has not yet reported it to the ATO, the SMSF will also need to report the commencement date and value of the relevant income stream at the same time as a separate event
• when a commutation authority is issued to an SMSF. The SMSF must abide by legislated reporting requirements. Refer to commutation authorities for more information.

To avoid the incorrect issue of an ETB Determination to a member, you are encouraged to report the following events as soon as possible if they occur before 1 July 2018:

• any debit where an SMSF member is commuting an income stream because they have become aware they have exceeded their transfer balance cap
• any debit that occurs prior to a member rolling over some or all of their retirement phase income stream out of their SMSF and starting a new retirement phase pension or annuity with another provider
• any structured settlement contributions made to the fund on or after 1 July 2017.

Consequences of late reporting

Once your reporting has commenced, lodge the TBAR with the ATO as soon as practicable after the event has occurred to ensure your member’s transfer balance account is updated.

If you do not lodge the report by the required date your member’s transfer balance account will be adversely affected and they may be penalised. You may also be subject to compliance action and penalties.

Source: See more detail and some examples at https://www.ato.gov.au/Individuals/Super/Super-changes/New-transfer-balance-cap-for-retirement-phase-accounts/New-transfer-balance-account—credits-and-debits/

And here

https://www.ato.gov.au/Super/Self-managed-super-funds/Administering-and-reporting/Superannuation-Transfer-Balance-Account-Report/

Want a Superannuation Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make this the year to get organised or it will be 2028 before you know it.

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Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.