Earlier this month, SMSF Adviser reported that the ATO was putting together guidance to assist with valuation issues in situations where an SMSF member is unable to determine what their balance is at June 30.
Practical Compliance Guideline (PCG) 2017/5 was released yesterday, explaining how SMSF members with pension balances in excess of $1.6 million can request a pension commutation effective 30 June 2017, even though the amount of their pension excess is not determined until after 30 June 2017.
It avoids the need for SMSF members to estimate their excess pension balance and commute this amount before 30 June 2017, SuperConcepts general manager of technical services and education Peter Burgess told SMSF Adviser.
“What the ATO is allowing people to do is to put in place a commutation request, and they don’t actually have to stipulate the amount of the commutation, because they don’t know yet what their balance is going to be at 30 June. And as long as it complies with the guidelines, then the ATO will accept that as a valid request,” Mr Burgess said.
“This has to be one of the most important documents we’ve seen from the ATO on the super reforms.
“All people will have to do, essentially, is sign one of these request forms and they’ll be complying with the $1.6 million cap. They don’t physically have to move any excess amount back to the accumulation phase before 1 July. They just have to provide this instruction to the trustees and they don’t have to put an amount on there, because they don’t know the amount that they want to commute at this stage, and that’s good enough for the ATO.”
To be a valid request, both the request and acceptance to commute have to be made before 1 July 2017. The request must also be irrevocable and the member must not enter into a similar agreement with any other funds, Mr Burgess said.
“It’s unusual to see the ATO issuing commutation guidelines like this. but they should be applauded for doing so,” he said.
“They didn’t have to do this, but they have issued this to help people to try and comply with the $1.6 million cap.”
You can access the full PCG here.