Excess TBC issues surfacing with reduced pension account values
The ATO has expressed concern that some trustees with diminished pension account values may be putting themselves at risk of exceeding their transfer balance cap by commuting their pension and then topping it back up.
In a recent discussion with Smarter SMSF, ATO assistant commissioner, SMSF segment, Steve Keating said the ATO is worried that some trustees don’t fully understand how the credits and debits in their transfer balance account operate, which may expose them to potential transfer balance cap issues.
“We’re concerned that where we’ve seen the value of pension accounts reduce, that some trustees may be putting themselves at risk of exceeding the transfer balance cap by commuting to roll back and then top up their pension because they may not properly appreciate how the credits and debits in their transfer balance account operate,” he explained.
“Without getting too technical, if a member starts a pension valued at $1.5 million which is today now worth only $1.2 million and they wish to roll it back into accumulation phase so that they can top it up with, say, $300,000 that they still have in accumulation phase, if they start a new pension at $1.5 million, they’ll be in excess of their transfer balance cap by $200,000.”
Mr Keating said this means the trustee will have to commute the excess, plus any extra transfer balance earnings from the pension as well as pay excess transfer balance tax.
He also reminded SMSF professionals and trustees that where a pension is being commuted in part, trustees must ensure that sufficient assets remain to meet the minimum pension payment status for that year based on the original value of the income stream at the start of the year.
“Trustees have an obligation to ensure that the commencement and commutation of pensions is supported by contemporaneous records and that the payments have been correctly characterised to allow the SMSF auditors to ensure that the minimum pension payment status had been met,” he said.
“There are transfer balance cap as well as exempt current pension income consequences if a pension fails to meet the standards, and these can lead to more and more complex TBAR reporting obligations in the future.”
Miranda Brownlee
24 July 2020
smsfadviser.com
Hot Issues
- ATO encourages trustees to use voluntary disclosure service
- Beware of terminal illness payout time frame
- Capital losses can help reduce NALI
- Investment and economic outlook, August 2024
- What the Reserve Bank’s rates stance means for property borrowers
- How investing regularly can propel your returns
- Super sector in ASIC’s sights
- Most Popular Operating Systems 1999 - 2022
- Our investment and economic outlook, July 2024
- Striking a balance in the new financial year
- The five reasons why the $A is likely to rise further - if recession is avoided
- What super fund members should know when comparing returns
- Insurance inside super has tax advantages
- It’s never too early to start talking about aged care with clients
- Capacity doubts now more common
- Most Gold Medals in Summer Olympic Games (1896-2024)
- SMSF assets reach record levels amid share market rally
- Many Australians have a fear of running out
- How to get into the retirement comfort zone
- NALE bill passed by parliament
- Compliance focus impacts wind-ups
- LRBA interest rates increase for 2025
- Income-free areas set to increase from 1 July
- Most Spoken Languages in the World
- Middle-to-higher incomes boosting SMSF growth
- Investment and economic outlook, May 2024
- Transitioning into retirement: What you should know
- Plan now to take advantage of stage 3 tax cuts
- Deeming freeze a win for Age Pensioners
Article archive
- April - June 2024
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
- January - March 2015
- October - December 2014
July - September 2020 archive
- September update of latest COVID-19 initiatives.
- Update of Superannuation contribution rules from July 1, 2020.
- More than $31bn paid under early super release
- Your super fund, your choice
- SMSFs urged to act on compliance issues ahead of tougher penalties
- A beginner's investment guide to long-term wealth
- ATO confirms important issue on pension payments
- How SMSF trustees navigated COVID-19 volatility
- JobKeeper - Latest Update
- Pandemic spurs a rise in investment scams
- Estate planning and investments
- Early release of Super extended to Dec 31
- Excess TBC issues surfacing with reduced pension account values
- The Bond Market.
- Treasury underestimates early super by $15bn
- 'But how will we pay for this?'
- SMSFs urged to review leases before granting rent relief
- New financial year to bring new rules for super
- Extra Tools & Resources for our clients.
- Ways to outsmart your cognitive biases
- COVID-19 cuts risk pension pain
- New laws prompt review of SMSF estate plans
- SMSF sector grows, new fund numbers drop