Overview

Under TBAR, any transaction involving a retirement phase pension (ie, tax free pension interest such as an account-based pension or a transition to retirement income stream in retirement phase) that gives rise to a transfer balance account credit or debit will also give rise to a corresponding reporting obligation. We refer to these pensions as ‘RP Pensions’.

While each event must be reported separately, the TBAR form allows for reporting of four events per member (apart from child pensions where only one event is permitted per form). Naturally, there is no need to lodge a report if there are no relevant events for the relevant period.

Reporting timelines

TBAR applies to SMSFs on a compulsory basis from 1 July 2018, and SMSF trustees will need to disclose the value of pre-July 2017 RP Pensions being paid by this date.

Under ATO administrative concessions, SMSFs will broadly report events that arise on or after 1 July 2017 either annually or quarterly. The exact reporting frequency that applies to an SMSF broadly depends on the total superannuation balance (‘TSB’) of all members of a particular fund.

Whether a particular SMSF providing RP Pensions to one or more members is required to report annually or quarterly is determined as follows:

• If all members of the SMSF have a TSB less than $1 million just before 1 July 2017, the fund will need to report events no later than the due date for lodging the SMSF’s annual return.
• If any member of the SMSF had a TSB of $1 million or more just before 1 July 2017, the fund will need to report events within 28 days after the end of the relevant quarter in which the event occurs.

For SMSFs that commence paying RP Pensions for the first time on or after 1 July 2017, the fund’s reporting frequency is determined based on the TSB of fund members at the end of the prior financial year (ie, the 30 June of the financial year prior to when the fund’s first RP Pension commences).

Importantly, the reporting frequency does not change once it has been locked in, even where the TSBs of the fund members subsequently changes to fall within or exceed the $1 million threshold.

However, it should be noted that special rules apply in respect of:

• commutations of pensions that arise due to an excess transfer balance determination — the report must be made within 10 business days after the end of the month in which the commutation occurs; and
• transactions relating to a commutation authority issued by the ATO — the report must be made within 60 days of the date the commutation authority was issued.

Best practice reporting

Although annual or quarterly reporting for SMSFs does not commence until 1 July 2018, SMSF trustees should consider reporting events in advance of their obligations to ensure the ATO correctly administers members’ transfer balance caps.

We generally recommend that a report should be lodged as soon as practicable after the commencement or commutation of an RP Pension so that it is not subsequently overlooked and a hefty late penalty is imposed.

In particular, SMSF members who also have RP Pensions in a large APRA-regulated superannuation fund may wish to consider reporting on a timely basis due to the fact that large funds are generally reporting events within 10 days of the end of each month.

The ATO explain the rationale for this on their website as follows (QC 54088):

…if an SMSF member rolls their super benefit into an APRA-regulated fund and starts an income stream there – and it is not reported to us by the SMSF at the time it happens – a double-counting of the member’s income streams will occur. This is because there will be a mismatch in timing of the reporting done by the APRA-regulated fund and the SMSF. In this instance, an SMSF is encouraged to report the commutation as it occurs or no later than at the time of the rollover.

Financial product or tax advice?

Naturally, for advisers, there are also financial services law obligations to consider under the Corporations Act 2001 (Cth), and tax advice obligations under the Tax Agent Services Act 2009 (Cth) (TASA) that need to be appropriately managed.

Consider the following scenario: where a member withdraws more than their minimum pension amount for a financial year, it is generally preferable that the excess (minimum) amount be characterised as a commuted lump sum (assuming that no accumulation account is available). Naturally, such a (partial) commutation would be a relevant TBAR event that would need to be reported.

This raises the question of whether the adviser provided financial product advice (requiring an Australian Financial Services Licence; ‘AFSL’) or whether tax advice was provided instead (requiring registration with the Tax Practitioners Board under TASA).

Advisers naturally have to be prepared for possible future investigation and they should retain ample evidence that they acted within these limits. Advisers with an AFSL should generally ensure they have only provided financial product advice and, if they have provided tax advice, they will also need to be appropriately registered under TASA.

On the other hand, for advisers who are not covered by an AFSL, they need to stick to the provision of tax advice provided they are registered tax agents and must not provide any financial product advice.

The TBAR regime may be a source of information for monitoring whether appropriate advice has been provided by appropriately qualified advisers.

Late lodgement

Another sound reason for timely reporting is that failure to lodge a TBAR on time may result in penalties. A $210 penalty applies for each period of 28 days that a TBAR is lodged late subject to a maximum $1,050 penalty. However, the ATO has stated that it will take a ‘judicious approach’ to enforcing the new model in the first 12 months of its inception for SMSFs.

Conclusions

SMSF trustees and advisers need to ensure they comply with the TBAR regime to avoid penalties and manage each members’ transfer balance cap correctly. An excess transfer balance cap can result in additional tax and any late lodgement may also incur a significant penalty.

In the short term, many SMSF trustees should focus on lodgement of the first report for pre-1 July 2017 RP Pensions by 1 July 2018 or earlier. From 1 July 2018 each SMSF should lodge on a timely basis despite being able to rely on an annual or quarterly cycle under the ATO’s administrative concessions.

The transfer balance account and related rules are complex and expert advice should be obtained if there is any doubt.

William Fettes, senior associate and Daniel Butler, director, DBA Lawyers