‘Start acting promptly’: ATO flags next steps for SMSFs exceeding transfer balance cap

With the indexation general transfer balance cap set to occur on 1 July, ATO superannuation director Helen Morgan warned advisers must prepare for those clients who have exceeded the transfer balance cap and should start to stay on top of the fund’s reporting, which will have serious consequences if not managed correctly once indexation begins.

“The most important advice is to act promptly,” Ms Morgan said.

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“To help facilitate this from late June 2021 individuals of the MyGov account will be notified and prompted to check their MyGov account when we send them an excess transfer balance determination.

“As always, review the excess transfer balance determination remembering that your client and their individual agent can view all of the events that make up their transfer balance account.

“From 1 July 2021, you will need to review both why we consider they have exceeded their transfer balance cap and you may also need to look at how and understand how we have calculated their personal transfer balance cap.”

Ms Morgan said if a fund considers that their reporting to the ATO is not reflected in the individual transfer balance account, where for example they’ve reported an event that they consider is missing or an event that they have tried to cancel still appears, they’ll need to promptly contact the ATO to resolve the issue.

“Please ensure any reporting errors are corrected or missing information is reported as soon as possible,” she said.

“The concession which allows SMSFs to report events no later than 28 days after the end of the quarter or in line with their SAR for the year in which the event occurred does not apply once we have issued the member with an excess transfer balance determination.

“If you need more time to understand the individual situation or for their fund to correct any reporting the individual or their agent should contact us on 13 10 20 and request an extension of time.”

However, Ms Morgan advised SMSFs to do this before the due date of the fund’s determination.

“We can’t give you an extension of time if we have already sent a commutation authority to the member super fund,” she explained.

“If you don’t act by the due date on the determination or the extended due date we will send a commutation authority to the super fund specified in the determination.

“If you do need to commute the amount set out in the determination you should contact your super fund and ask them to commute the excess amount. Unless you are commuting a death benefit income stream, this lump sum can be transferred into an accumulation account or withdrawn from super.

“If you are commuting a death benefit income stream the lump sum must be withdrawn from the superannuation system.”

Ms Morgan recommended advisers ensure that the commutation is made by the due date and is for the full amount set out in the determination, including any cent. 

If the fund requires a commutation of an amount in whole dollars and the amount needed to commute is comprised of dollars and cents, SMSFS will need to round up to ensure the fund has commuted enough to rectify the excess, she noted.

If SMSFs don’t commute the full amount by the due date, Ms Morgan warned the ATO will send a commutation authority to the super fund even if the remaining amount is very small. 

“If you commute the amount after the due date shown on your determination and have not sought an extension of time or you commuted by the due date and there is a delay in your fund reporting to this, we may issue or have already issued a commutation to your authority to your super fund to have the excess transfer balance amount commuted and you risk having the amount committed twice,” she said.

“If an individual doesn’t want to or is unable to request a commutation from their fund, they can make an election by the due date on the determination and they can make the election in ATO online.

“However, in these instances we’re still unable to send a commutation authority to their super fund until after the due date in the determination, this means an individual who makes an election will usually pay more excess transfer balance tax than an individual who acts by themselves by their due date because they will have been in excess for longer.”