New TBAR timeframes to complicate death benefits

Speaking to SMSF Adviser, Colonial First State executive manager Craig Day said the transfer balance cap reporting time frames recently announced by the ATO mean that different funds will have different reporting time frames depending on the type of fund and the member’s balance.

“Therefore advisers will need to understand both the type of fund, and if it’s an SMSF they need to know what reporting time frames apply, to know whether the ATO’s data for a client is actually accurate and can be relied upon to an extent,” explained Mr Day.

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“For example, you could have a client commence a pension under the new rules on 1 July of the new financial year and depending on their circumstances and the reporting time frame that the fund is subject to, the ATO’s data for that might be out of date by 22-and-a-half months into the future.”

If the fund is only required to report transfer balance accounts on an annual basis when the fund lodges the tax return, he said, then there will be at least 12 months until the year is up, and then they’ve got potentially till mid-May the following year to report because that’s when the SMSF’s annual return would be due.

So when advisers are looking at doing something with the client such as commencing a pension or commuting a pension, they’ll need to understand whether or not the ATO’s data is actually accurate, he stressed.

SMSF practitioners might think they can just obtain the client’s transfer balance account value from the ATO which would enable them to decide how much cap space they’ve got left, but the ATO data could potentially be very out of date, he warned.

“In that situation, what that means is the adviser will now need to take reasonable additional steps to calculate that transfer balance cap value that the client has remaining, over and above just getting the client to look up their transfer balance account value on the ATO website or by contacting them directly,” he explained.

Prior to recommending the commencement of a retirement phase income stream, an adviser will need to confirm the current value of their transfer balance account and therefore their remaining transfer balance cap, he said.

“This will require them to go back and look at the relevant the superannuation interest accounts for those members, their pension accounts and calculate what amount those pensions were commenced for. If they were commenced on or after 1 July, they also need to have a look at that 30 June figure, and take into account any commutations, so the adviser will really have the obligation to go and do that work, rather than to be able to just rely on any ATO reporting,” he said.

“In addition, advisers should then retain ongoing records so that they are able to calculate the client’s TBC position quickly as required.”

This could be very important, he said, where a client has died and their spouse needs to commute and roll back an amount of their own pension to accumulation phase to create additional cap space and allow them to receive more of the original member’s death benefit as an income stream.

“Unless separate records have been maintained, it may be difficult to quickly calculate the value of the commutation required, especially where the client has been commuting additional lump sums from their own pension, which could delay the payment of a death benefit and increase the risk they end up exceeding their TBC,” said Mr Day.

In these types of scenarios, SMSF practitioners won’t be able to wait the potential 22-and-a-half months for all the reporting to wash through and know how much to commute, he warned.

“The adviser would actually need to do that relatively quickly so they’d have to go back in and look at the fund’s records, look at all the transactions and figure out which of those withdrawals are pension payments, which were commutations, and then calculate what the actual transfer balance cap for the survivor is, which would then tell them how much to commute,” he said.

“So it could actually get reasonably complicated for a financial adviser, and there is also a time frame in relation to the payment of death benefits which they need to keep in mind as well, and all that work needs to be done reasonably quickly.”