Common traps flagged with excess determinations

“The ETB determination will specify the amount the taxpayer has to transfer out of pension phase and the date by which this has to be achieved,” said Mr Hallinan.

“If the taxpayer does not comply with the ETB determination, then penalties will be imposed on the taxpayer and the ATO may cause sufficient pension balance to be transferred out of pension phase by directing the superannuation trustee to take the necessary action.”

Dealing with the determination

Mr Hallinan warns that choosing to ignore the determination is the worst response.

“The taxpayer will have to take some action – whether to review the accuracy of the determination or accept that the determination is accurate and to undertake the necessary commutation action,” he said.

It is important that SMSF clients are aware that increasing their pension drawdown rate or making a one-off large pension payment will not solve the underlying issue.

He also explained that even if the ETB determination is based upon incorrect information, only the trustee that provided the incorrect information in the first place can correct this information.

Reviewing the determination

Where a client has provided incorrect information to the ATO, he said, they should use the MyGov website and their login details to review the TBAR amounts that have been reported. 

Another possibility is that a commutation of pension has not been reported, he added.

“For instance, if a pension has been transferred from fund A to fund B, then the pension payable by fund A has been fully commuted, a lump sum has been paid to fund B and a new pension has been issued by fund B,” he explained.

“In this case, fund A would have issued a TBAR credit when the pension commenced or its value as at 1 July 2017 if the pension commenced before 1 July 2017, and should have reported a TBAR debit when the pension was commuted while fund B should have reported a TBAR credit when the new pension was issued.  If the TBAR debit from fund A has not been reported, then the pension balance has been double counted, which could give rise to an excess transfer balance.”

If there has been an error in a TBAR, said Mr Hallinan, then the issuing trustee must reverse that TBAR and issue a corrected TBAR. 

“Importantly, the ATO has no power to correct or disregard a TBAR. Only the issuing trustee can correct it by reversing the incorrect TBAR and issuing a correct TBAR,” he said.

“If a TBAR debit has not been reported, then it must be immediately reported.  If the ATO is advised that the excess is due to an unreported TBAR debit, it is likely that the ATO will suspend any corrective action to permit the TBAR debit to be reported.”

Taking action by the due date

An excess over $1.6 million of a transfer balance account can only be corrected by having a TBAR debit equal to the excess.  This means commuting in part or in full, one or more pensions, said Mr Hallinan.

“The ETB determination will specify the dollar value which has to be commuted and also the date by which the commutation must be effected,” he said.

“Only commuting the pension will generate a TBAR debit.”

If there is no error in the ETB determination, he said, then the only response is to undertake the commutation and ensure that the trustee that issued the pension submits a TBAR in respect of the commutation as soon as possible.

“Doing nothing will only cause the ATO to effect a mandatory commutation of whichever pension the ATO chooses and at greater transaction cost to the taxpayer,” he said.