One technical expert has stressed the importance of SMSF trustees identifying the specific superannuation interests that a commutation will occur from when making a commutation request.
Last week, the ATO released Practical Compliance Guideline (PCG) 2017/5 which explained 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.
The SMSF Academy’s Aaron Dunn explained that the ATO doesn’t have a simple resolution that accounts for all the superannuation income streams a member might have across multiple funds so the member will need to be specific about what superannuation interest the commutation will occur from.
“If you’re running multiple pensions inside your super fund, you want to ensure that the request by the member is specific to the superannuation interests,” Mr Dunn said.
This was also reflected in PCG which stated the member must specify “the superannuation income stream which will be subject to the commutation”.
“Where the request may cover more than one superannuation income stream, the request and acceptance will need to specify the different superannuation income streams that may be covered and the order of priority in which the commutations will occur,” the PCG said.
If an SMSF trustee has two account-based pensions running in a fund, one that has a 100 per cent tax-free proportion and another that has a tax-free proportion lower than 100 per cent, the member’s request to commute down to the transfer balance cap should be specific to the first pension, Mr Dunn explained.
“[The request] would be something like this, ‘I, John Citizen, member of the self-managed fund, currently in receipt of two account-based pensions, hereby request that the trustees partially commute account-based pension number one, to allow me to comply with the transfer balance cap. We hereby ask the trustees to confirm the amount that is to be commuted in part to enable compliance with that transfer balance cap’,” he said.
“So then, when we do the accounts and the reporting the trustee then [helps] to determine that exact amount that takes the member to the $1.6 million but I’m being very specific there to where that’s coming from.”
Mr Dunn also emphasised the fact that making these commutation requests does not involve any back-dating of documents as the resolution will be prepared prior to 30 June.
“You don’t need to be specifying an amount and you can specify where it’s coming from, but the ATO is saying if you’ve got multiple funds in place, one resolution that would cover those funds is not going to be accepted,” he warned.
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