ATO flags changes to TBAR reporting

New rules are in effect, which will see changes to how SMSFs manage transfer balance lodgement.

Super funds can now commute excess transfer balance amounts from specific income streams, such as some legacy pensions and market-linked pensions, according to the latest guidance from the ATO.

Treasury Laws Amendment (Allowing Commutation of Certain Income Streams) Regulations 2022 relating to the transfer balance cap (TBC) was recently passed and took effect from 5 April 2022.

This means funds can now action a commissioner’s commutation authority relating to specific legacy pensions and market-linked income streams.

The ATO said funds would be impacted if it had members who held a capped defined benefit income stream (CDBIS). 

“That is a lifetime pension that commenced before and after 1 July 2017, or life expectancy pension or annuity, or market-linked pension, including those paid by retirement savings accounts (RSAs), or annuity that commenced prior to 1 July 2017,” the ATO said.

“This is then later commuted to purchase a life expectancy pension or annuity, or market-linked pension or annuity.”

The ATO said to ensure the transfer balance debits and credits were accurate, where these pensions have been commuted and an applicable new pension started, on or before 4 April 2022 – funds should report 5 April 2022 as the reported effective date, even though the events occurred prior to this date.

For commutations on or after 5 April 2022 – funds should report the date the events occurred as the reported effective date.

“When reporting the valuation, you should use the reported value from the actual date the event occurred, not the reported effective date,” the ATO said.

“We encourage you to report these to us if you are able to do so, as delays will impact your members excess transfer balance debt (if applicable).

“If you’re impacted by this change you may need to seek professional advice and it may take time to get your records in order to commence reporting.”

The ATO said to support practitioners, it wouldn’t consider late lodgment penalties where funds were required to report a transfer balance event that relates to this issue only.

It would also include if the lodgment due date for the event was prior to 1 January 2023 and funds would lodge the TBAR by 1 January 2023.

“You should commence reporting as soon as possible, as some members will begin to accrue an excess transfer balance tax liability from the date of the change to the regulations,” the ATO said,

“The Commissioner has no discretion to remit excess transfer balance tax accrued by the individual.

“You should also review your current trust deed and pension agreements to ensure they allow this type of commutation.”

Due to these changes, the ATO said it recommended to advise members that the amount of excess transfer balance tax was calculated and accrues from the reported effective date of the transfer balance debits and credits.

“If they receive an excess transfer balance determination, and they choose to use the new exception to the commutation rules, then they must wait for us to issue a commutation authority to their fund,” the ATO said.

“Funds are only legally permitted to use the new exception to the commutation rules once a commutation authority is received from us.

“If they want to commute from an income stream account that is not a CDBIS they don’t need to wait for that fund to receive a commutation authority from us.”

The ATO said if their income stream currently qualified for asset-test exempt status for Veteran and Social Security benefits, it was recommended they seek professional advice specific to their circumstances.

“More information on income streams and your Centrelink payment is available at Income streams – Services Australia,” the ATO said. 

“We will be updating our website to reflect these changes in the coming weeks.” 

Tony Zhang

30 May 2022

smsfadviser.com