Transfer balance cap and event based reporting for SMSF’s
There were many changes happening to superannuation within the last 12 months and as we draw closer to the must dreaded 1 July 2018 reporting date here’s what you need to know:
Transfer balance cap
Effective 1 July 2017 the government announced a transfer balance cap of 1.6million on pension accounts. This means if you had $2million in your member account at 30 June 2017 you either had to withdraw $400,000 from superannuation (putting it into a personal bank account or other personal investment) OR convert $400,000 from a tax free pension account to a taxable accumulation account.
This was a major change in superfund legislation, one that many superfund members are not happy about because it essentially means your tax free fund is no more. On the above example 20% of your fund is now taxable, instead of 100% tax free.
Transfer balance account
This is the ledger your accountant keeps tracks of for you in their software system where debits and credits are recorded. Going forward it will mean more administration time spent by your accountant to keep on top of your ever-changing transfer balance account.
Monthly/Quarterly monitoring will be required going forwards instead of the usually once a year visit to your accountant to get the tax done. If this doesn’t happen it could cost you in unnecessary excess tax.
Excess Personal Transfer balance cap
If you exceed your personal transfer balance cap the excess will need to be converted back to accumulation and the excess will be subject to an excess transfer balance tax, this 15% for 2017/18 financial year for the first breach and 30% tax for subsequent breaches.
The transfer balance cap is indexed in increments of $100,000 on an annual basis in accordance with CPI.
Event based reporting for superannuation funds
If you are a member of a Self- Managed Superannuation fund and you have a member balance of above $1million, from 1 July 2018 you are required to report events impacting members’ transfer balances within 28 days after the end of the quarter in which the event occurs. This is known as Transfer Balance Account Reporting.
What does need to be reported?
- The commencement of a new superannuation income stream
- Pension commutations
- The cessation of a superannuation income stream
- Structured settlement contributions received on or after 1 July 2017
What doesn’t need to be reported?
- pension payments
- investment earnings and losses
- when an income stream is closed because the interest has been exhausted.
Essentially this new legislation will not have any benefit to fund members, if anything it will no doubt cost them more in annual compliance fees.
Rest assured the handful of clients impacted by these changes have been communicated with and plans put in place for their compliance.
If you’re looking to make changes to your superannuation and are uncertain whether these changes will impact you, reach out to your trusted PJT Advisor for a confidential discussion.