TBAR Lodgement – pension commencement
Commutation of a retirement phase income stream is an event that affects a member’s transfer balance account for the transfer balance cap (“TBC”). The Transfer Balance Account Report (“TBAR”) has to be lodged with the ATO by the relevant due dates. The transfer balance cap is currently $1.6 million.
For 2019-20 and 2020-21 financial years, the Government has allowed a 50% reduction in the minimum pension limit (“transitional MPL”) for account based and similar pensions as part of its COVID-19 economic response. The transitional MPL came into effect on 25 March 2020.
Pension members who wish to maintain their pension income above the transitional MPL have been able to use a combination of lump sum commutation (after 25 March 2020) and reduced minimum pension strategy to maximise their TBC.
Reminder: Lump sum commutation of retirement phase income stream is a reportable transfer balance event. Depending on the TBA reporting frequency (either quarterly or annually) of a member, the TBAR has to be lodged with the ATO in the required time frame.
For members with quarterly reporting obligations, the TBAR for the quarter April–June 2020 will be due on 28 July 2020. Relevant members who have used the above combination strategy will have to lodge their TBAR by 28 July 2020.
For those who can use the annual reporting framework, the event can be reported no later than the due date for lodgement of the SMSF’s return.
The mechanism to determine a member’s TBAR reporting frequency is set out below.
TBAR frequency – Quarterly or annually
To recap, a fund member’s TBAR reporting frequency depends on the generic TBAR framework established for all members at the time the first member of the SMSF started a retirement income stream. This framework (either quarterly or annually) will apply to all members regardless of fluctuations in member balances or members leaving or joining the SMSF. Once the reporting framework has been set, SMSF trustees will not be expected to move between annual and quarterly reporting due dates.
Quarterly reporting: When the first member of the SMSF starts a retirement phase income stream during a year and the SMSF has any member with a total super balance (“TSB”) of $1 million or more as at 30 June immediately before the start of the income stream, the quarterly TBAR is established. All members of the SMSF must report transfer balance account events within 28 days after the end of the quarter in which the event took place. This is the case even if the member who started the income stream has TSB of less than $1 million.
Where the SMSF has pre-existing retirement income streams on 30 June 2017, all members of the SMSF would have to report quarterly if there was one member with an individual TSB of $1 million or more on 30 June 2017.
Annual reporting: When the first member starts a retirement phase income stream during a year and all members of the SMSF have a TSB of less than $1 million as at 30 June immediately before the start of the income stream, the annual reporting framework is established for all the members. This is the case even if subsequently the TSB of any member of the SMSF reaches $1 million or above.
Other TBAR events
Other events that affect a member’s transfer balance to be reported include:
• commencement of new retirement phase income streams;
• commencement of death benefit income streams;
• relevant LRBA payments entered into or refinanced on or after 1 July 2017 which results in an increase in the value of a member’s interest that supports their retirement phase income stream (LCR 2016/9);
• ATO commutation authority;
• Personal injury (structured settlement) contributions.
For further information, please call Townsends Business & Corporate Lawyers on (02) 8296 6222 or email firstname.lastname@example.org .