The ATO recently published a presentation on transfer balance cap reporting (TBAR) for agents, providing an overview of the obligations for SMSFs and the ATO's expectations. 

Cancelling a TBAR

Where there are multiple transfer balance account events, the ATO explained that the transfer balance system treats each new report as a new event.

“One event does not simply override another,” she said.

Where a cancellation of a TBAR is being reported, the ATO said it is critical that the TBAR being lodged is clearly a cancellation of information previously reported to the ATO.

“The information you provide in the cancellation TBAR should exactly match the information previously provided that you want to cancel,” the Tax Office stated.

“This allows us to match the previously reported information with what you want cancelled. If we can’t match your cancellation TBAR to the information already reported to us, it will suspend for manual review.”

The ATO warned SMSF professionals and their clients not to simply lodge a TBAR reporting the correct value of the income stream that was previously reported incorrectly.

“We will generally just “double count” this information, adding to the reporting you will need to fix,” it cautioned.

SMSF trustees were also advised not to lodge a TBAR that ticks the cancellation indicator but includes the correct value of the income stream that was previously reported.

“This will generally create reverse workflow for you and lead to delays in correcting the information. The TBAR form will suspend because it can’t find the information you are trying to cancel, and we will need to contact you to resolve the situation,” the ATO explained. 

Valuing new pensions

When calculating and reporting the value for account based pensions that commenced on or after 1 July 2017, Ms Morgan said SMSF professionals and their clients should apply the ATOs Valuation guidelines for SMSFs.

Consistent with these guidelines, Ms Morgan explained that the ATO will accept a reasonable estimate of the account balance where a pension is commenced part way through the year or where the pension is commenced on 1 July and a full valuation of the assets supporting the pension is not available by 28 October.

“We would expect that as part of choosing to commence a pension, an individual will be in possession of a reasonable estimate of the starting value of that pension and will have taken that into consideration as part of both their broader financial planning and as part of ensuring that commencing the pension will not result in them exceeding their transfer balance cap,” said Ms Morgan.

“In some instances it may be prudent to bring forward the usual valuation practices.”

Although a reasonable estimate of the value of a pension can be used for reporting a transfer balance cap event in these circumstances, Ms Morgan warned that tax agents and their clients “cannot rely on this reasonable estimate when preparing the SMSF's financial accounts and calculating the SMSF's entitlement to exempt current pension income (ECPI)”.

Reversionary and non-reversionary pensions

Where a deceased member’s interest is retained within the superannuation system and cashed to a dependent beneficiary in the form of a death benefit income stream, a credit will arise in the dependent beneficiary’s transfer balance account. A death benefit income stream can be either reversionary or non-reversionary. 

“We have a very precise view of what is necessary for an income stream to be a reversionary income stream. In particular, a binding death benefit nomination by itself does not make a superannuation income stream reversionary,” the ATO stated. 

“Law Companion Ruling 2017/3 contains more guidance to help you understand what we consider makes an income stream a reversionary income stream.”

Non-reversionary pensions, the ATO stated, need to be reported to the ATO in the same way as any other new pension an individual commences. 

“The effective date will be the date the income stream commences and the value on that date. The credit will arise in the individual’s transfer balance account on the day the income stream commences,” it said. 

“Although you are required to cash the deceased member’s superannuation interests to their beneficiaries as soon as practicable, there will generally be sometime between the date of death of the member and the commencement of the death benefit income stream.”

With reversionary income streams, the ATO said SMSFs will need to report the date the income stream commenced in the hands of the beneficiary and the value of the income stream on that day.

“In this instance the date you report will be the date of death of the member and the value will be the value of the income stream on that day,” it said. 

“As you will also report that the income stream is a reversionary income stream, we will not apply the credit to the individual’s transfer balance account until 12 months after the income stream commenced in the hands of the beneficiary.”

The ATO will display information about the value of the pending future credit and its effective date in an individual’s transfer balance account information online.

The Tax Office also warned funds not to report the date they calculate the credit will arise as the effective date of the income stream.

"Our system will see this as you attempting to report an event that you anticipate will occur at some time in the future, the form will suspend for manual review, creating reverse workflow for you and your clients,” it said. 

“The online TBAR form will not allow you to report an event with a date in the future.”

Educative approach

The ATO said it is still currently taking an educative and supportive approach where an SMSF lodges a late, regular or quarterly TBAR.

“So, if you haven’t met the deadline but are working towards lodging as soon as possible, you don’t need to seek a formal extension of time,” it said. 

“However, you need to be aware that any late lodgment of routine TBARs may adversely affect the individual’s transfer balance account and may cause reverse workflow for you, the member and the SMSF.”

Some of the adverse consequences of late lodgement she warned are increased likelihood of inadvertent breaches as the individual doesn’t have a clear line of sight of their affairs and increased likelihood of an individual being in excess for longer and paying more excess transfer balance tax, the ATO warned. 

The ATO also warned that its educative approach does not apply once an individual has exceeded their transfer balance cap.

“In particular, we cannot give you an extension of time to report any commutation that occurs once we consider an individual has exceeded their cap and been sent an ETB determination. As already highlighted, delays in reporting this information to us may result in a commutation authority issuing to a fund,” it said.