Events-based reporting a ‘live issue’ for SMSFs

Speaking in a webinar, SMSF Academy director Aaron Dunn said the ATO has made it clear that there are a range of events relating to the transfer balance cap that will need to be reported at the time the event occurs.

“We don’t have a time frame as to what that actually is. Initially that had been spoken about as being a couple of weeks after the event occurring,” Mr Dunn said.

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Where SMSFs do not adhere to events-based reporting following the introduction of the transfer balance cap, Mr Dunn warned that this could result in scenarios where the trustee is issued with an excess transfer balance cap determination where it may not actually apply.

“If [an individual] had an SMSF and started a pension with $1 million and was withdrawing an income stream from that $1 million and then decided that they no longer wanted an SMSF, what would happen is they’d commute that pension and roll it over to an APRA-regulated super fund. Immediately thereafter, the APRA-regulated fund would report that pension against [their] transfer balance cap as a credit,” he said.

If the SMSF trustee also reported the initial pension themselves as a trustee when it was first commenced from the SMSF, this would mean that the $1 million pension had been reported as a credit twice against the transfer balance cap.

“So if I’ve had a credit reported against the transfer balance cap on the initial pension by myself as a trustee of the fund, and then when I’ve moved that money out to another fund in a different year and moved it across to an APRA-regulated fund, another $1 million credit would have then been reported against my transfer balance cap,” Mr Dunn said.

“If I had [reported the credit] when I lodged the final tax return for the fund, that would mean [the] commissioner would issue me with an excess transfer balance cap determination so I would in essence have $2 million reported against my transfer balance account and, therefore, I would need to comply with any commutation authority if I didn’t take the appropriate action.”

On this basis, Mr Dunn said the commissioner is making it clear that there are several types of changes that need to be reported as the event occurs. These events include where a fund complies with a commutation authority issued by the commissioner to reduce a balance, when there is a commutation in respect to a member’s income stream and where a member is entitled to an income stream arising from a structured settlement.

“There is going to be [an] expectation that they will be reportable upon the event, rather than forming part of an annual compliance requirement,” Mr Dunn said.

“Now, of course, the ATO is going to continue to work with the sector because this events-based concept is something that is relatively new to the industry.”

As more firms move to cloud-based technology, Mr Dunn said this has opened up the opportunity for more regular reporting but the concept of events based reporting is still something that will need to be looked at by SMSF firms in relation to what practical challenges it poses.

Events based reporting will be a particular issue where there is substantial length of time after 30 June 2017 before the SMSF practitioner or member actually has the information required for reporting the commencement of an income stream or another type of event to the ATO.

“There’s going to be practicalities to getting this events based reporting right, so we’re going to continue to see the ATO continue to work with us, and try to find adequate solutions, but it is a live issue,” he said.

“You need to be thinking of this in the future, because this concept of once a year isn’t going to really fly for a long period of time after the introduction of the reforms.”