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
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
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
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