System error sees trustees hit with incorrect determinations
Certain SMSF trustees who qualified for the transitional rule for the transfer balance cap have been incorrectly issued with excess balance determinations due to a system error, warns an SMSF services provider.
In an online article, Heffron head of SMSF technical and education services Lyn Formica said the majority of SMSFs lodged their transfer balance reports (TBARs) for the 30 June 2017 balance in the last few days of the 2018 financial year.
Some SMSFs have already started to receive excess transfer balance determinations, she said, where the ATO believes the trustee has exceeded the $1.6 million transfer balance cap.
However, there are a small group of individuals, she said, who qualified for the transitional rule and commuted their excess before 31 December 2017, and incorrectly received excess transfer balance determinations.
These members, whose total pension value at 30 June 2017 was greater than $1.6 million but less than $1.7 million, are not liable for excess transfer balance tax provided that the excess amount above the $1.6 million was either rolled back to accumulation phase or withdrawn as a lump sum commutation before 31 December 2017.
“However, due to a systems error, some individuals who qualified for the transitional rule incorrectly received an excess transfer balance determination,” said Ms Formica.
“Clients in this situation need to report the problem to the ATO who will check the eligibility rules were met and then manually revoke the determination.”
Members are also receiving incorrect transfer balance determinations where wind ups of SMSFs or commutations have not been reported, she said.
“The event reporting deadlines for SMSFs are quite different to APRA funds. Consider the situation of an individual drawing an account-based pension from an SMSF,” she explained.
“To facilitate the wind up of the SMSF, the bulk of the pension account of $852,000 is commuted to a lump sum on 15 June 2018 and rolled over to an APRA fund. A new pension is commenced in the APRA fund on 18 June 2018 with an amount of $852,015.”
The earliest the SMSF is required to report the new pension commencement in 28 October 2018, she said.
“However, the APRA fund was required to report the new pension commencement by 29 June 2018 – within 10 business days of the event,” she said.
“Without the reporting of the lump sum commutation, the individual will appear to have an excess transfer balance of $102,015 (i.e., $850,000 + $852,015 - $1.6m) and the ATO will issue an excess transfer balance determination. This situation can be corrected by the SMSF now lodging a TBAR to report the lump sum commutation.”
In some cases pensions external to the SMSF have been missed in calculating the amount which needed to be rolled back to accumulation phase in the SMSF.
“Accountants in this situation may need to revise the 30 June 2017 member balances for the SMSF and lodge an amended TBAR,” she said.
“Importantly, remember that if the documentation prepared before 30 June 2017 expressed the roll back along the lines of ‘whatever is required to ensure the retirement pension balances in both the SMSF and other funds were exactly $1.6 million in total at 30 June 2017’, then amending the TBAR and updating the member’s pension accounts in the member statements, is correcting an existing error.”