At the moment, the tax office does not have any plans to index the threshold over time. However, the ATO’s Kasey Macfarlane couldn’t rule it out.
“As is the ATO approach, we will continue to evaluate the impacts of our approach, and it will be subject to community consultation,” she said at the SMSF Summit in Melbourne last week.
SMSF professionals are also commonly querying at what point a fund measures itself against the $1m threshold.
The ATO proposes for those with existing pensions on 1 July 2017, they would measure their position in relation to the $1m threshold based on the total super balance of their members as at 30 June 17.
Those SMSFs which don’t have any members starting a pension until after 1 July 17 would test their position in relation to that threshold based on the total super balance of their members on the 30 June immediately prior to the commencement of that income stream or pension.
Slightly more complex arrangements, such as when one SMSF member has a total super balance greater than $1m and others in the fund have a total super balance less than $1m, are also raising queries.
“In that case it is proposed that the SMSF will report all events for both members, or all members, 28 days after the end of the relevant quarter,” said Ms Macfarlane.
“As soon as you have one member with a total super balance over $1m, then that means that all transfer balance cap events for all members are reported 28 days after the end of that quarter,” she said.
“We think that’s appropriate to apply at the fund level like that, to avoid administrative complexities of SMSFs and their advisers having to work out different methods and different reporting time frames.”
The tax office also proposes that, in instances where a member’s super balance falls below the $1m threshold during a financial year where they were previously above it, they do not switch to annual reporting in that year.
“That approach is being taken to avoid administrative complexity of people going in and out of annual and quarterly reporting, creating difficulty for advisers and administrators,” she said.
Ms Macfarlane also stressed that it is not only SMSF members in retirement phase who are tested against the $1m threshold.
“All members’ total super balances are tested against the $1m threshold and are relevant to determine the reporting time frames that apply. The reason for that is it’s not just about money already in the retirement phase, it’s also about money that people hold in super which could potentially be transferred into the retirement phase in the future, and cause an inadvertent or accidental trip over the transfer balance cap,” she said.
Finally, a frequent query is how and when events that occurred in the 2017/18 financial year get reported.
Irrespective of whether they are on an annual or quarterly time frame, SMSFs aren’t required to start reporting transfer balance cap events until 1 July 2018. The ATO afforded the SMSF sector a transitional period to cushion the blow of moving to a new reporting model.
“What is proposed is that those events would be reported at the same time that the SMSF submits its first transfer balance account report,” said Ms Macfarlane.
“If they are annual it would be when they lodge their 2017/18 annual returns… so in May 2019,” she said.
“If the SMSF is reporting quarterly, for example if their first transfer balance cap event happens in July 2018, they would report that event on 28th October 2018, and at the same time they wold report those other events that also may have occurred in 2017/18 years that we don’t know about yet because of that transition period,” she said.