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Significant changes were made to the Australian superannuation system in 2017, including the introduction of the transfer balance cap (TBC).
The TBC is a limit, referred to as a ‘cap’, on the amount of your retirement savings held in super that can be moved into pension or retirement phase, where all fund earnings associated with these pensions become tax free.
The TBC was initially set at $1.6 million but is subject to indexation in line with inflation in $100,000 increments. The first indexation event occurred on 1 July 2021 when the cap was initially increased to $1.7 million.
Due to the high inflation rate over the last two years, this cap will be indexed again on 1 July 2023 by a further $200,000, resulting in a general transfer balance cap of $1.9 million.
How indexation could affect you
If you have previously started an income stream, your personal transfer balance cap will be adjusted for indexation based on the proportion of the cap you have already used in the past.
If you have previously started a retirement phase income stream using your entire personal transfer balance cap at the time, then you will not be eligible for any level of indexation.
Conversely, those who are yet to start a retirement phase income stream will receive the full $200,000 increase to their personal cap and will therefore have a personal transfer balance cap of $1.9 million from 1 July 2023.
Partial indexation will apply for those who have already started retirement phase income streams but only where they have some amount of their cap remaining.
Due to the complexity of the TBC rules and especially around the way that the indexation rules apply, there will be no single TBC that will apply to everybody. So from 1 July 2023, individuals will have a personal TBC somewhere between $1.6 million and $1.9 million.
For that reason, it’s important you know your own personal position and understand what has been recorded within your transfer balance account.
Transfer balance account
To monitor pension balances and transactions that affect your own personal transfer balance cap, the government introduced a recording system referred to as the transfer balance account (TBA).
When you first begin a retirement phase income stream, a TBA will be established in your name with the Australian Taxation Office (ATO) recording all relevant events that count towards your transfer balance cap. We will look at these relevant events shortly.
Therefore, everyone in retirement phase will have a TBA. If you have more than one super pension account, the amounts used to commence those pensions will be aggregated in the one TBA.
Your TBA remains active until your death.
SMSF reporting requirements
If you are a member of an industry or retail super fund, then the trustees of your fund will meet the reporting requirements for your account-based super income streams. You don’t need to do anything.
If you have an SMSF, then you are responsible for reporting all transactions that affect any of the members’ TBA, including details around the commencement of retirement phase income streams and other relevant events.
Up until 30 June 2023, those relevant events need to be reported to the ATO either on a quarterly or annual basis, depending on the balance of the members pensions.
From 1 July 2023, ALL SMSFs are required to report ALL relevant events on a quarterly basis. We will cover this change in more detail below.
What SMSFs need to report
Getting to grips with transfer balance account reporting (TBAR) requires trustees to understand what does, and does not, need to be reported.
The ATO stipulates that the following events need to be reported by an SMSF as transfer balance events:
- Commencing a retirement phase income stream: Details of when a member starts a retirement phase income stream, including the value of the pension at commencement and the date the pension begins.
- Retirement phase income stream commutations: This includes when a member stops a pension, when a pension ceases and is taken back to accumulation phase or where a lump sum payment is commuted from that pension.
- Death benefit income streams: You need to include the value of the death benefit pension and the date that pension begins.
If the death benefit income stream is reversionary, usually following the death of a spouse, the start date will be the date on which the member died. The pension value is the value on the date of death. However, the ATO will not assess this amount against the surviving spouse’s TBA until 12 months after the reversionary pension commenced.
- Details of limited recourse borrowing arrangement (LRBA) payments: You need to report the value and date of each relevant payment for an LRBA that was entered into on or after 1 July 2017, or where a pre-existing LRBA was refinanced on or after 1 July 2017. However, you only need to report transactions where the payment results in an increase to the member’s retirement phase income stream. This would occur, for instance, where the loan repayments are made from the fund but have no effect on that member’s pension balance. This would not be a common occurrence for most SMSFs.
If you have an LRBA within your SMSF, you should check any relevance with your fund administrator.
- Compliance with a commutation authority: A commutation authority is issued by the Commissioner of Taxation when an SMSF member has exceeded their transfer balance cap and has been issued an excess transfer balance determination.
The authority means they need to commute the excess amount. If the transfer balance event was in response to a commutation authority, a transfer balance account report (TBAR) needs to be lodged within 60 days of the commutation authority being received.
Also, if a member voluntarily commutes a pension in response to an excess transfer balance determination being issued, their TBAR is due within ten business days after the end of the month in which the commutation occurs.
- Details of personal injury or structured settlement contributions: Reporting requirements would include the relevant value and dates of the contributions.
What SMSFs DON’T need to report
The following are SMSF transactions or events that do not need to be reported:
- Any pension payments: As pension payments do not reduce a member’s transfer balance account (TBA) balance, they do not need to be reported.
- Investment earnings and losses: Again, as these amounts do not increase or reduce a members TBA balance, there is no need for these to be reported.
- When an income stream ceases because the interest has been exhausted
- When a member receiving a pension passes away: The death of the member does not affect their TBA. Note that there may be other reporting obligations where the deceased member’s benefits are paid out from the SMSF as a death benefit pension or as a reversionary pension.
There are other events that take place within an SMSF that are reported to the ATO using a Transfer balance event notification (TBEN) form (NAT 74919). As these events are reported through that form, they DO NOT then need to be reported again within the SMSFs TBA report.
These events would usually include:
- Amounts under a family law payment split
- Debit event from fraud, dishonesty, or bankruptcy
- Structured settlement contributions made before 1 July 2007.
How SMSFs need to report
Relevant events are reported to the ATO using a Transfer Balance Account Report, or TBAR which you can lodge yourself by downloading and completing a hard copy of the report or your SMSF administrator can meet this requirement for you.
The ATO provides some directions on how to complete the form but they are basically a series of quite complex multiple-choice questions around the event and its value.
You can report up to four events on one hard copy report. But you need to answer all the event-based questions for each event.
You can also lodge online in Online services for businesses.
As mentioned, your SMSF administrator or tax agent can lodge reports on your behalf, usually electronically.
Administration platforms can also notify you when an event occurs for which a TBAR needs to happen and arrange for these reports to be lodged on your behalf.
Changes to reporting deadlines
From 1 July 2023, all SMSFs will need to report events on at least a quarterly basis, regardless of the size of the member balances inside the SMSF.
The following table provides a snapshot of the reporting requirements:
Quarter 1 | 1 July – 30 September | Due by 28 October |
Quarter 2 | 1 October – 31 December | Due by 28 January |
Quarter 3 | 1 January – 31 March | Due by 28 April |
Quarter 4 | 1 April – 30 June | Due by 28 July |
Even though the requirements impose a quarterly reporting obligation, the ATO encourages earlier reporting in some situations, especially in a year when an indexation of the cap is about to occur.
As well as encouraging people to report any transfer balance events as soon as possible before the indexation, the ATO also asks SMSFs that are winding up and rolling over any members’ pensions to lodge the TBAR before the SMSF is wound up.
The ATO also encourages people to report a commutation of a pension that a member wants to rollover to another fund at the time of the rollover. This is especially important if the member is starting another income stream in the new fund, so the income stream is not counted twice.
The bottom line
Transfer balance account reporting (TBAR) can seem complex if you haven’t done it before, but once you understand what events need to be reported, it is just another administration task you need to do for your SMSF.
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