Investment Strategy

Final event-based reporting rules released

By AMP Capital

The ATO has released the final guidelines around the new event based reporting rules that will allow SMSFs to see how their fund is tracking against the $1.6m transfer balance cap.

The Australian Taxation Office (ATO) has released final guidelines around how the new event-based reporting rules for self-managed superannuation funds will work.

The rules allow the tax office to administer and regulate the $1.6 million transfer balance cap requirements.

Under the rules, SMSF members will be able to see how their fund is tracking against the cap, so they can act if they inadvertently go over the cap.

There are two sets of rules. There's one set for large funds regulated by the Australian Prudential Regulation Authority (APRA) and a separate set of rules for SMSFs regulated by the ATO.

SMSFs who have members with a total balance in super of up to $1 million can report events that impact the cap once a year when the fund’s tax return is lodged.

SMSFs with members who have a total super balance above $1 million will report events impacting the transfer balance account within 28 days after the end of the quarter in which the event occurs.

What is a transfer balance cap?

An individual’s transfer balance is the net amount of all of their transfer balance account credits and debits at the end of any particular day.  It includes amounts used to commence pensions, including death benefit pensions.  

The reporting of members’ transfer balance cap events is required to track an individual’s transfer balance account across all funds and deliver the appropriate consequences if an SMSF member goes over their transfer balance cap.

A member’s transfer balance account records transfers in (credits) and transfers out (debits) of their retirement-phase accounts.  But it is not adjusted by the payment of pensions or income, expenses or losses are also allocated to those accounts.

The net balance of a member’s transfer balance account at any given time determines whether they have gone over their transfer balance cap. If they have, they may have to pay excess transfer balance tax and will be required to move any excess funds out of their retirement phase income stream.

How to report

SMSFs will start event based reporting on 1 July 2018.

All superannuation providers, including SMSFs, will report transfer balance cap events via the ‘Transfer Balance Account Report’ (TBAR) on an approved form.

Members can submit their TBAR report through three channels, a bulk data exchange, an online form, or through a paper form. Each debit and credit event will need to be separately reported.

What you need to do

In most cases, the introduction of the event based reporting rules will have minimal impact on most SMSFs.

For many SMSFs, members will only have one or two transfer balance cap debits or credits in the life of their fund, for example starting or stopping a pension.

SMSFs with no members in retirement phase will generally have nothing to report until they start a retirement income stream.

Recent ATO data suggests just over half (52%) of all SMSFs have no members in retirement phase.  The reporting requirement does not apply in nearly all cases until a member commences a pension or death benefit pension from the SMSF.

Super funds that are regulated by APRA will start to submit TBARs for members no later than 10 business days after 30 November 2017.

SMSFs have been given a transitional concession so they typically won’t have to start TBAR reporting until 1 July next year.

What to report…and what not to

Under the new rules, SMSF trustees will need to report any pre-existing pensions, that is, pensions an SMSF member was already receiving just before 1 July 2017.

Trustees will also need to report new pensions, including death benefit income streams, reversionary pensions, and when a transition to retirement income stream becomes a retirement phase income stream.

Other payments made from a pension account, such as rollovers or the full or partial commutation of a pension to a lump sum need to be reported by the fund. Structured settlement contributions and some limited recourse borrowing arrangement loan repayments must also be reported.

It’s also important to understand what you don’t need to report. Trustees don’t need to report every pension payment paid to the SMSF member, investment earnings and gains and losses. It’s also unnecessary to report when a pension stops in the event of a member’s death or when there are no more assets from which to pay a pension.

Trustees who are not sure what they should report can check with their accountant, tax agent or financial adviser to ensure amounts recorded against their transfer balance cap are accurate and up to date

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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