With the new super rules that began on 1 July 2017, your requirement to report information about your SMSF and the pensions it pays you and other fund members may be changing. This is driven by the introduction of the new $1.6 million transfer balance cap which limits the amount of assets you can use to pay pensions from super with.
From 1 July 2017, the government introduced a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions.
Currently, pensions only need to be reported once a year through the SMSF annual tax and regulatory return to the Australian Taxation Office (ATO).
From 1 July 2018, if a member of your SMSF has $1 million or more in superannuation and a member of the fund is receiving a pension from superannuation assets then your SMSF will be required to report more information about its members’ pension than currently needed. This is so the ATO can accurately monitor your transfer balance cap to know if you have exceeded the $1.6 million limit. Going over the $1.6 million transfer balance cap limit can result in needing to pay additional tax.
You will be required to report to the ATO the credits and debits that count towards your transfer balance cap. We would recommend gaining the advice of an SMSF Specialist on how to best facilitate this based on your specific circumstances.
The most common credits are:
- The commencement value of new pensions, including death benefit pensions.
- The value of reversionary pensions 12 months from the time the individual is entitled to receive the pensions.
- The value of notional earnings that accrue on excess transfer balance cap amounts.
The most common debits are:
- Ceasing a pension (known as a “full commutation”).
- Taking a lump sum out of the pension (known as a “partial commutation”)
From 1 July 2018 transfer balance cap credits and debits must be reported within 28 days after the end of the quarter that they occur in. For instance, if you start a new pension on 1 July 2019, then this credit will need to be reported by 28 October 2019.
If your SMSF does not have any members with a superannuation balance of $1 million or more, then you will not need to undertake extra reporting regarding pensions.
Seek advice from an SMSF Specialist
It is important to seek the advice of an SMSF Specialist in order to assist you in understanding how the ATO’s new reporting requirements for superannuation pensions may impact you and your fund, either now or in the future. To find your nearest SMSF Specialist, use our Find a Specialist function.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.