Reporting changes mean more than just meeting new deadlines
The changes to reporting for SMSFs that started on 1 July this year involve more than ensuring trustees meet the new calendar deadlines, says the head of education of a leading software provider.
The 1 July changes to the TBC reporting regime mean a lot more SMSFs will now need to report any TBC events, such as the commencement or commutation of a pension on a quarterly instead of an annual basis.
And although this may seem to be a minor technical change, it could actually have a range of significant practical implications for funds, including impacting the timing of when pensions commence inside an SMSF.
Mark Ellem, head of education for Accurium, said on the latest FirstTech podcast for Colonial First State that SMSFs will no longer just be able to use the member balance in the last set of annual financial statements as its pension commencement value or its transfer balance account event reporting value.
“Instead, the fund is going to have interim accounts to at least be able to reasonably calculate or estimate the value of each of the members’ benefits and confirm the tax components so it can work out the value of the transfer balance account even being the commencement of the pension,” Mr Ellem said.
“This, in turn, will require advisers to value the fund’s assets, because we’ve got to value the fund’s assets at market value in the annual financial statements when we’re commencing a pension.”
Mr Ellem said the changes mean there will be more pensions starting on dates other than 1 July which means funds cannot use the annual set of account valuations.
“You’re going to need to go and get people to do valuations and accountants to come up with an interim set of accounts, this is actually going to increase the cost for a lot of funds of starting a pension,” he said.
Before the changes were implemented an SMSF was a quarterly reporter where any member of the SMSF had a total superannuation balance of at least a $1 million at 30 June 2017.
“An SMSF that was a quarterly reporter, must report such events 28 days after the end of the quarter in which the transfer balance account event occurred whereas an SMSF that was an annual reporter would have up until the due date of lodgement of the SMSF annual return for that income year in which the transfer balance account event or events occurred to report them to the ATO.”
For a lot of SMSFs that were annual reporters and where all members have been in the retirement phase for several years, the changes may not mean much initially, Mr Ellem said.
“For example, if everything is already set up, the commencement of the retirement phase pension has been reported for transfer balance account purposes, and they’re just drawing down their pension payments, they’re not starting a new pension, they’re not taking any partial lump sum computations, then the change in reporting frequency won’t mean much as they actually have nothing to report,” he said.
“There’s no event to report for transfer balance account purposes.
“If the fund was previously an annual reporter, and let’s say the member starts a new retirement phase income stream today, such as an account-based pension, the fund is now a quarterly reporter and will need to report the credit for transfer balance cap purposes within 28 days after the end of the quarter.
“For an SMSF that was an annual reporter in last financial year, the 2022–2023 financial year, if the commencement date of the retirement phase pension which occurred in that financial year has not been reported for transfer balance purposes, and hasn’t been reported by 30 June just gone, it will be required to be reported by 28 October, as part of the transition to the streamline transfer balance reporting regime.”
He said it is not only retirement phase income stream commencements that need to be reported but any TBC or transfer balance account event that occurred in the 2022–2023 income year financial year, that has to be reported by 28 October this year as well.
“It will be really important for those funds to identify all those events that need to be reported for transfer balance account purposes in the 2022-2023 year, as well as any events occurring up to 30 September 2023, as all of them will need to be reported by 28 October,” he said.
“If they get that wrong, then penalties could potentially apply.
“Potentially the late lodgement penalty will be assessed at the rate of one penalty unit for each period of 28 days or part thereof, that the report is overdue up to a maximum of five penalty points.
“The current value of a penalty point is $313 which just increased on 1 July from $275 a penalty point.”
