The case studies help explain when the member needs to report an event to the ATO.

One of the scenarios involves a member, Tracy, who commenced a market linked income stream in 2015, which is the only income stream that Tracy has.

“On 1 July 2017, the income stream was valued at $840,000. The SMSF reported that event to us via the TBAR when they lodged their SAR for the 2017–18 year,” the ATO explained in the case study.

On 30 June 2020, Tracy commuted this CDBIS, the commutation value at that time was $700,000. She used the underlying account balance to start another pension on 1 July 2020 valued at $640,000. The SMSF has only reported the commencement of the CDBIS as they required more guidance from the ATO.

The ATO explained that when it initially calculates Tracy’s personal transfer balance cap, the only event reported to the ATO and processed by it will be the income stream Tracy had before 1 July 2017.

“To ensure that Tracy’s transfer balance is calculated correctly at the time Tracy commutes this income stream, the SMSF should report the commutation of the CDBIS with an effective date of 5 April 2022, with the commutation value of $700,000,” the ATO explained.

“The SMSF should then report an account-based pension commencing on 5 April 2022 for $640,000.”

The ATO said that Tracy’s transfer balance account will show and original credit amount of $840,000, a debit amount of $840,000, and a new credit amount of $640,000.

“Tracy's balance is $780,000. She is not in excess and is not required to commute any excess amounts from these income streams,” it said.

The ATO has also included case studies where the commencement of the new pension has resulted in an excess transfer balance amount. 

With regulations now in effect that allow SMSFs with restructured market-linked pensions to remove any excess transfer balance amounts, SMSFs have been urged to report events with these income streams to the ATO.

SMSF Association technical manager Mary Simmons said in May that the sooner a trustee reports these events to the ATO, the sooner the Commissioner will be able to make an excess transfer balance determination, she said.

“Only once the Commissioner issues the determination will the excess transfer balance earnings be crystallised in calculating how much capital needs to be removed from a retirement income stream,” she noted.