The new transfer balance account reporting (TBAR) requirements are vital for minimising the tax consequences for an individual where the new transfer balance cap (TBC) of $1.6 million is exceeded. The requirements simply aim to provide more visibility on an individual’s position in relation to the TBC to ensure that trustees are not incurring daily compounding tax liabilities of which they are not aware. These requirements will also allow individuals to act early if they inadvertently exceed their TBC thereby reducing any excess TBC liabilities.

At the ATO, we’ve heard a lot of speculation about the new reporting requirements for SMSFs circulating in the industry. With almost 600,000 SMSF funds and 1.1 million SMSF members in Australia it’s crucial that we clear up some of these myths so SMSF trustees have a clear understanding of the changes to the requirements.

1. MYTH ONE: Event-based reporting will require daily calculations of earnings and members’ account balances

This isn’t the case. The proposed model is only in relation to events affecting an individual’s transfer balance account. It is not about the daily accounting and calculation of earnings of members’ balances.

The TBAR is specifically for the purpose of allowing SMSF trustees to report events that affect their transfer balance account, and provides visibility with regard to their position with respect to the TBC.

SMSFs will not be required to report investment earnings, gains or losses or pension payments on a more regular basis.

If an SMSF has members, in any period, that don’t have an event that affects a member’s transfer balance account, then they are not required to report anything to the ATO with regard to those members.

2. MYTH TWO: From 1 July 2018 all SMSFs will have to submit either quarterly or monthly TBAR reports to the ATO

This is not true.

Reporting is only required if there is an event that impacts on an individual member’s transfer balance.

This means that SMSFs that do not have any members in retirement phase (approximately 52 per cent of all SMSFs) will not have anything additional to report until such time as one of its members starts to receive a retirement phase income stream or pension.

3. MYTH THREE: SMSFs will have to report fluctuations in pension payments their members receive

Whilst the exchange of some or all of a person’s pension for a lump sum (commutation) impacts their transfer balance and will be required to be reported for transfer balance cap purposes, pension payments a person receives from their SMSF do not count towards a person’s transfer balance cap, and will not be required to be reported on an events basis for transfer balance cap purposes.

Therefore, similarly any increase or decrease in the amount of pension payments a SMSF member receives from their SMSF does not need to be reported on an events basis for transfer balance cap purposes.

4. MYTH FOUR: An SMSF’s application for CGT relief will be linked with their TBC reporting

This isn’t the case. As a transitional measure, the ATO simply requires SMSFs to report whether they are electing to avail themselves of CGT relief and, depending on the method they’re using, the total amount of any deferred CGT that has arisen from applying the relief. There are no intentions to incorporate CGT relief reporting into any of the broader ATO systems.

It is up to the fund to keep the individual records in relation to each individual asset they’ve applied the CGT relief to, what the reset cost bases are, and the amount of any deferred gains for assets sold later down the track.

5. MYTH FIVE: The ATO will penalise SMSFs that don’t report on time, through late lodgement penalties and also by denying exempt current pension income (ECPI) claims

The ATO’s focus leading up to and after 1 July 2018 is to support SMSFs and their advisers in being prepared for reporting on the TBC, and helping them in what is required to report these events.

Although it is true late lodgement penalties could apply, in the initial transition period, the ATO will be working with SMSF professionals to help them make the transition, rather than focusing on compliance measures.

Furthermore, the ATO has no intention in denying ECPI claims where an SMSF doesn’t report their TBC on time.

Feedback in response to the ATO’s position paper

The ATO has heard a lot of concerns about SMSF event-based reporting and in particular how often SMSFs will be required to report TBC events. We recently issued a position paper for comment seeking feedback on this point. We received over 170 responses to our position paper and the feedback highlights growing concerns about the benefits of and immediate need for event-based reporting of transfer balance cap events for SMSFs with members with balances significantly lower than the $1.6 million transfer balance cap.

We recognise that event-based reporting for transfer balance cap purposes represents a shift from current reporting arrangements for SMSFs, and we’re committed to working with the industry as we transition into a more regular reporting model.

Therefore, in light of the feedback we have received, both in response to our position paper and more broadly, we are giving further consideration to how we can most sensibly balance administrative ease and efficiency with the need to mitigate the risk of SMSF members being exposed to unexpected and increased excess transfer balance tax liabilities. One approach we are considering is the possibility of providing transitional relief from more regular event-based reporting for SMSFs whose members’ balances are significantly lower than $1.6 million. We will be providing further information about our position in the next few weeks.

Kasey Macfarlane, assistant commissioner at ATO