Professional planners and self-managed super fund specialists will not only need to come to grips with the new transfer balance account reporting (TBAR) system and its deadlines, but must also educate some clients on the importance of planning for, or advising of, reportable events.
There are, in effect, three reporting deadlines. The first and most pressing will be the requirement for SMSFs to report the balance of each member’s retirement phase income stream, including account-based pensions and market-linked pensions – as at June 30, 2017 – on or before July 1, 2018.
The frequency and deadlines for reporting after this initial TBAR, to advise of each member’s reportable events that affect their transfer balance account, depends on the total superannuation balance (TSB) of each member.
The TSB for each member will be the total of their accumulation accounts and retirement income stream accounts, including lifetime pensions, with all super funds, and any amount in rollover stage from one super fund to another that is not reflected in a member’s account balance.
An SMSF that has a member with a TSB of $1 million or more must report events affecting their members transfer balance account within 28 days of the end of the quarter in which the event occurs. SMSFs whose members all have a TSB of less than $1 million must report any events affecting a member’s transfer balance account on the annual return form.
The events that must be reported on a TBAR form – after the first one reporting members’ retirement stream balances at June 30, 2017 – include:
- new retirement phase income streams
- some limited recourse borrowing arrangement payments
- compliance with a commutation authority issued by the ATO
- personal injury structured settlement contributions
- commutations of retirement phase income streams.
The new TBAR system will not add significantly to administration workloads for trustees, nor for the professionals who assist them, for funds with members who have a TSB of less than $1 million. Professionals with clients who have a TSB of more than $1 million, triggering the more frequent reporting requirement, will need to educate their clients on the importance of advising of any commencements or commutations of account-based pensions straight away.
There could be a number of circumstances where it would be in the interest of trustees to lodge a TBAR form soon after a reportable event occurs, rather than waiting until the deadline. One such event would be when an account-based pension is fully or partially commuted in an SMSF, the amount is then rolled over to a commercial or industry fund, and a new account-based pension is commenced.
If a TBAR form is not lodged soon after the rollover, and the combined value of the amount commuted in the SMSF and the new account-based pension in the commercial or industry fund exceeds $1.6 million, the trustees of the SMSF would face the administrative hassle of dealing with an excess transfer balance account notice from the Australian Taxation Office.
This would occur as a result of industry and commercial super funds lodging TBAR forms at least monthly. If the trustees of the SMSF do not report the commutation until it lodges its annual return, the member’s TBA account could exceed the $1.6 million transfer balance.
Here’s an example: Stan Hardy has an account-based pension with a value at June 30, 2017, of $900,000. Stan is the only member of his SMSF and his TSB is $900,000. Stan commutes his $900,000 account-based pension into the SMSF on September 1, 2018, rolls the funds into an industry fund, and commences a new account-based pension with that fund.
If Stan reported the commutation of his old account-based pension at the time of lodging his SMSF’s 2019 annual return form, he would more than likely receive an excess transfer balance cap notice. This would result from the combined total of his original account-based pension and the new one he commenced with the industry fund exceeding the cap.
