Vital technical step flagged for commutation requests

SMSF practitioners must ensure they include information on how clients’ excess will be calculated when preparing minutes for commutation requests, the SMSF Association has cautioned.

In April, the ATO released Practical Compliance Guideline 2017/5 which outlined that SMSF members with a pension balance in excess of $1.6 million can request a pension commutation effective 30 June 2017, even though their pension excess won’t be determined till after 30 June 2017.

SMSF Association head of technical Peter Hogan said the tax office has stressed that while it won’t ask SMSF practitioners and trustees to quantify the excess in the minutes they prepare for the pension commutation, they need to be clear about how they intend to calculate the excess in the minutes.

“The ATO have said it’s got to be in writing, it’s got to be done before 1 July and that you need to be clear about how it will be calculated, and [identify] which income streams will be commuted,” Mr Hogan said.

“Whatever you think will make it clear what pension you’re talking about and how you will perform the calculation [should be included in the minutes].”

Mr Hogan also stressed that whatever the minutes say should also be reflected in the annual accounts.

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