Q&A: Do I need to complete a TBAR when commencing a Transition to Retirement (TTR) pension?

Let me explain it to you now and take you through processes. First of all, what is a TBAR? A transfer balance account report is the document, it’s the process we use to inform the tax office about our retirement phase or our pension phase balances. So, whenever we start a pension, whenever we start a retirement phase pension, we need to tell the ATO. Whenever we have, for instance, a lump sum commutation taken from our pension, we need to tell the ATO. When we stop a retirement phase income stream, so we say we don’t want it anymore, we take it back to accumulation, that’s an event, a transfer balance account event. All of these things need to be reported to the ATO, and they’re reported using a transfer balance account report. That way, the ATO tracks each of our transfer balance caps, how much we’ve used of that.

So, when we go to start a TTR pension, they are not considered to be in retirement phase. Remember that the earnings that the TTR pensions generate are no longer tax free. They used to be, but now they’re no longer tax free. If we take money out under a TTR and we’re over 60, those pension payments are tax free to us, but the earnings the fund generates on those pension balances are no longer tax free. It’s only retirement phase income streams where the earnings become tax free and TTR pensions are not in retirement phase. So, they’re not assessed under your transfer balance cap. Therefore, there is no transfer balance account report required. There’s nothing that you need to inform the ATO of in those circumstances. That’s the short answer.

What does need to be reported? Starting a retirement phase income stream, ceasing a retirement phase income stream (apart from balance exhaustion), commutations (Lump-Sums) taken from a retirement phase income stream, commencement of a reversionary pension, certain LRBA repayments, complying with an ATO commutation authority and when a TTR Pension enters retirement phase.

The reason why the TTR are not retirement phase income streams, and hence they don’t get caught under your cap. The earnings are no longer exempt, the tax at the relevant rate, and therefore the balance of the TTR doesn’t count towards your transfer balance cap. But there is a catch here. A transfer balance account event occurs, and it needs to be reported to the ATO using the TBAR when your TTR pension enters retirement phase.

So, let’s go through an example here. In 2020, Garth, age 64, starts a TTR pension. That TTR pension is not in retirement phase. I’m still working, I’m 64. There is no transfer balance account reporting. We don’t have to tell the ATO about that. But if my TTR enters retirement phase, I do need to tell the ATO. And that is because when the TTR, the transition retirement, enters retirement phase, it is therefore caught under my transfer balance cap. And it happens when I turn 65 automatically.

So Garth was 64, started the TTR, no need to report it. But when I turn 65, that pension automatically enters retirement phase. Therefore, that will automatically become in retirement phase, and I need to tell the ATO about that. It’s the balance at that time that obviously gets assessed against my transfer balance account. But it also enters retirement phase, if you meet a full condition of relief, such as retiring. In those cases, I would need to inform the super fund trustees that I’ve retired. Therefore, my TTR pension becomes a transition to retirement pension in retirement phase and gets caught and assessed against my transfer balance account. At each of those points in time, there’s an event which occurs that requires me to lodge a transfer balance account at the appropriate time, depending on my balances.

I hope that helps. It’s quite complex. But put it simply, TTR pensions are not in retirement phase, and therefore, no need to report under a transfer balance account report. But it will become a retirement phase pension at some point in time when you then need to inform the ATO on it.