The new Transfer Balanced Account Report (TBAR) rules require superannuation fund trustees, including self-managed superannuation fund (SMSF) trustees, to report certain events to the Australian Taxation Office (ATO) that will impact a member’s transfer balance account.
Events to be reported include:
Pensions, other than transition to retirement (TTR) pensions, that were in place on 30 June, 2017 and continue to be paid after 1 July, 2017; and
the following events that occur on or after 1 July, 2017:
- when a pension commences or, for TTR pensions, begins to be in the retirement phase
- commutations from a retirement phase pension account
- personal injury contributions
- limited recourse borrowing arrangement repayments where the asset supports a pension and the repayment is sourced from non-pension assets; and
- a response to a request (Commutation Authority) from the ATO to commute an excess transfer balance amount from an individual’s retirement phase pension.
Super funds will also need to report 30 June accumulation phase and pension balances where the ATO requires additional information to calculate a member’s total superannuation balance. Pension payments and investment earnings do not need to be reported.
The information reported in the TBAR will be used to determine an individual’s transfer balance cap position and to calculate their total superannuation balance.
Timeframes for reporting
Most super funds that are regulated by the Australian Prudential Regulation Authority (APRA) lodged their first TBAR in December, 2017 and are now required to report to the ATO on a monthly basis.
However, most SMSF trustees will not need to start reporting until 1 July, 2018, unless the fund has a pension that was in place on 30 June, 2017, or a member has exceeded their transfer balance cap.
From 1 July, 2018, SMSFs will need to lodge a TBAR either annually or quarterly, depending on whether the fund has any members with a total superannuation balance (TSB) of $1 million or more. For TBAR purposes, TSB is measured as at 30 June, 2017 for members who had an existing pension or commenced a pension during 2017/18. For later years, TSB is measured as at 30 June of the year before the fund commences to pay its first pension.
The timeframes in which a SMSF will be required to report certain events are summarised in the table below. Note that funds can choose to report events as they occur, rather than waiting for the due date.
The first TBAR lodged for 2017/18 should include all events that impact a member’s transfer balance cap (other than those that are required to be reported earlier) that have occurred since 1 July 2017. Trustees will therefore need to ensure they are maintaining adequate records so they have sufficient data available to complete the TBAR.
Impacts of reporting timeframes
These reporting timeframes mean that there may be significant periods of time between when an event impacting a member’s transfer balance account occurs and when it’s reported to the ATO. For example, if an SMSF member commuted an existing account based pension in July 2017, the commutation may not be reported until May 2019 if the SMSF only lodges its TBAR annually.
The practical implications of delayed reporting are that SMSF members may have inaccurate transfer balance information, ETB Determinations may be incorrectly issued by the ATO or the individual may have to pay more excess transfer balance tax than might otherwise apply. Consequently, it may be in the member’s interests for the SMSF to report earlier.
Valli has $800,000 in superannuation benefits with Fund A (an APRA-regulated fund) and her husband Frank has $1,000,000 in accumulated benefits within an SMSF.
She retires on 1 February, 2018 and commences an account based pension (ABP) with Fund A. The trustee of Fund A reports the pension commencement in its TBAR for February.
Frank passes away in February 2018 and Valli is the sole nominated beneficiary for his superannuation. Frank’s financial adviser suggests she commence a death benefit ABP from the SMSF. In her grief, Valli forgets to tell the adviser she already has her own ABP.
The SMSF’s administrator commences the death benefit pension on 15 March, 2018 and subsequently reports the pension commencement in the fund’s TBAR that is lodged on 28 October, 2018.
What are the consequences for Valli?
The table below shows Valli’s transfer balance account. Valli exceeds the $1.6 million transfer balance cap by $200,000 on 15 March, 2018 when the death benefit ABP commences.
Assuming that Valli does rectify the excess amount until the ATO issues her with an ETB Determination on 28 November, 2018 (ie after the SMSF lodges its TBAR):
Valli will be required to commute the $200,000 excess amount plus notional earnings, estimated to be $12,714 (calculated using the current general interest charge of 8.72 per cent and compounded daily from 15 March, 2018 to 28 November, 2018) from one of her ABPs
If she commutes $212,714 from her ABP on 5 December 2018, she will have to pay ETB tax of $1,960 on the notional earnings (note in working out Valli’s tax liability, the notional earnings are recalculated to the date Valli rectifies the breach (ie 5 December 2018), increasing the amount of the earnings to around $13,070, which are taxable at 15 per cent).
What if the SMSF had reported earlier?
If the SMSF instead lodges a TBAR when the death benefit ABP commences and the ATO issues the ETB Determination on 15 April, 2018 (ie after the SMSF lodges its TBAR), Valli’s ETB position is as follows:
notional earnings on the $200,000 excess are $1,487 (calculated using the general interest charge of 8.72 per cent and compounded daily from 15 March 2018 to 15 April, 2018)
if she commutes $201,487 on 22 April 2018, ETB tax of $274 is payable on the recalculated notional earnings of $1,824 (ie from 15 March 2018 to 22 April 2018).
In reporting the pension commencement earlier, Valli’s excess transfer balance position is identified earlier by the ATO, reducing her ETB tax liability.
How to report
Superannuation funds and tax professionals are able to lodge the TBAR electronically via ATO Online Services or the ATO Business Portal.
There is also a paper form which can be downloaded from the ATO website. This option allows up to four events to be reported for a member, but a separate form is required for each member.
Penalties may apply for funds that fail to comply with their reporting obligations.
While the introduction of TBAR is likely to have some administration impact and added compliance burden for some SMSF trustees and their advisers, the ATO estimates that up to 85 per cent of SMSFs will only have annual reporting obligations.
However, in some circumstances it may be in a member’s best interests for the fund to report events as they occur, rather than reporting quarterly or annually. Earlier reporting will allow the ATO to hold more accurate information regarding a member’s transfer balance cap position and potentially reduce a member’s tax liability if they have exceeded the transfer balance cap.
ATO, Event-based reporting for SMSFs, 15 December 2017 www.ato.gov.au/Super/Self-managed-super-funds/Administering-and-reportin...
ATO, Transfer balance account report instructions, 30 November 2017 www.ato.gov.au/Forms/Super-Transfer-Balance-Account-Report-Instructions/
David Barrett is head of technical services at Macquarie.