ATO finalises guidance on transfer balance cap
Late last week, the ATO issued the finalised LCG 2016/9 Superannuation reform: transfer balance cap.
You can access the full guide here.
Mostly, the finalised guidelines are a confirmation of what was already issued in the draft guidelines in November last year.
“It is positive from the point of view of ratifying what we already knew, it’s nice to have that confirmation,” said Perpetual’s Colin Lewis, who is generally pleased with the comprehensiveness of the LCGs issued by the ATO.
The final version of the guidelines appears to take a more cautious approach to the transitional rule, which applies to individuals who are over their transfer balance cap by less than $100,000 as at 1 July 2017 and remove the excess by 31 December 2017, explained SuperConcepts’ Peter Burgess.
“The draft guidelines said individuals with pension balances approaching $1.7 million should carefully monitor their pension balance and ensure it doesn’t exceed $1.7 million as at 1 July 2017. The final guidelines refer to $1.6 million as the relevant threshold,” Mr Burgess said.
“Essentially, what the final guidelines are saying is that whilst you will not be liable to pay excess transfer balance tax if you exceed the transfer balance cap by an amount equal to or less than $100,000, and you remove that excess by 31 December 2017, there may be other implication as a result of you exceeding the $1.6 million transfer balance cap,” he added.
“For example, you will not be eligible for any proportional indexation should you ever commence a second pension after 1 July 2017 and if you don’t remove the excess by 31 December 2017, you will be liable to pay excess transfer balance tax.
“So individuals should be cautious, ‘lower their eyes’ and focus on the $1.6 million as being the relevant cap rather than automatically factoring in the transitional $100,000 amount.”
Mr Burgess pointed to a positive development in the explanatory memorandum, which says any breaches of the transfer balance cap committed prior to 1 July 2018 do not count as a ‘first strike’ when assessing the 30 per cent tax rate to apply to any subsequent transfer balance cap breaches.
“Under the legislation, a tax rate of 30 per cent applies to additional excess transfer balance tax assessments the individuals receive, as opposed to 15 per cent for the initial breach. However, an assessment that applies to an excess transfer balance period beginning before 1 July 2018 does not count as an earlier assessment for the purposes of assessing subsequent breaches at the 30 per cent rate,” he said.
“So whilst an individual, who is eligible for the $100,000 transitional measure, may not be entitled to any future indexation of the cap, at least their excess pension balance won’t count for the purposes of determining the 30 tax rate to apply to any subsequent transfer balance cap breaches.”
The final guidelines also provide more details about how the transfer balance cap will be applied in the event of divorce and provide further confirmation that a reversionary pension must automatically revert in order to be eligible for the 12-month grace period.
“In other words, if the trustees have any discretion over how the death benefit can be paid, and they ultimately decide to pay the benefit as a death benefit pension, a credit will appear in the recipient’s transfer balance account on the day the pension commences and the credit value will be the value of the pension at that time. If the pension automatically reverts, the credit only appears in the recipient’s transfer balance account 12 months after the date of death and the value of the credit is based on the value of the pension as at the date of death,” Mr Burgess said.
KATARINA TAURIAN
Tuesday, 14 March 2017
smsfadviser.com
Latest Newsletters
Hot Issues
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
- The compounding benefits from reinvesting dividends
- Three things to consider when switching your super
- Oldest Buildings in the World.
- Illegal access nets $637 million
- Trustee decisions are at their own discretion: expert
- Regular reviews and safekeeping of documents vital: expert
- Latest stats back up research into SMSF longevity and returns: educator
- Investment and economic outlook, February 2024
- Planning financially for a career break
- Could your SMSF do with more diversification?
- Countries producing the most solar power by gigawatt hours
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- Quarterly reporting regime means communication now paramount: expert
- Plan now to take advantage of 5-year carry forward rule: expert
- Why investors are firmly focused on interest rates
- Super literacy low for cash-strapped
- Four timeless principles for investing success
- Investment and economic outlook, January 2024
- Wheat Production by Country
- Time to start planning for stage 3 tax cuts: technical manager
- Millions of Australians lose by leaving savings in default MySuper funds
Article archive
- 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
April - June 2017 archive
- ‘Bank-like heists’ make way for new wave of cyber crime
- Give your children a saving and investing edge - for life
- Women still in the dark about finances
- Lessons learnt - often the hard way
- Australian population figures
- ATO poised to ramp up focus on key compliance area
- Benefit payments rise dramatically ahead of July 1 super changes
- There's no magic pudding when it comes to super
- ATO guidance provides clarity on death benefit confusion
- Beyond super: Our other personal investment market
- The three core pillars of this year's budget
- Federal Budget - 2017-18 - Overview
- Federal Budget - 2017-18 - Budget documents
- Global economy synchronised and thriving
- Life's financial turning points: good and not-so-good
- 2011 Census - what was the make up of your area?
- ATO set to release guidance targeted for SMSF clients
- More withdrawals from 'the bank of mum and dad'
- Tax headache relief: Here’s more help with pension assets changes
- Most Aussies shun super advice
- Australia in a nutshell
- ATO finalises guidance on transfer balance cap
- Fit for purpose? The super story so far...
- SMSFs urged to review segregation clauses in trust deed
- Big insto addresses CGT misconceptions
- Dollar-cost averaging for millennial investors