Month: August 2017

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SMSF event-based reporting

‘From 1 July 2017, there is a new limit on the total amount an individual can transfer into retirement income stream accounts, such as pensions and annuities. This is known as the ‘transfer balance cap’.

Further information about the ‘transfer balance cap’ is available on the ATO website Super changes for SMSFs(External link).

From the 1 July 2018 SMSF trustees will be required to report events impacting an individual member’s transfer balance on an events basis.

We have published a position paper to explain how events based reporting by SMSFs for transfer balance cap purposes will work, including which events SMSFs will be required to report to the ATO from 1 July 2018 and how they will be reported to the ATO.

We are seeking your feedback on one specific aspect of SMSF events based reporting, being how oftenSMSFs are required to report events impacting an individual member’s transfer balance from 1 July 2018. Specifically, we are seeking your feedback in relation to two possible alternative options that are outlined in our position paper.

Our position paper is accessible via Let’s Talk – ATO(External link).

To access the SMSF event based reporting feedback form click here.

The consultation period is open for 28 days and the closing date for feedback in relation to how often SMSFs will be required report members’ transfer balance account events is required by 5pm Friday 15 September 2017.

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Pension transfer balance account reports (TBAR) – ATO draft timeframes – Draft SPR 2017/D2

On 16 August 2017, the ATO released for consultation a Draft Legislative Instrument – Reporting of event based transfer balance account information in accordance with the Taxation Administration Act 1953 (Draft SPR 2017/D2). It sets out the way in which superannuation providers (including SMSFs and life insurance companies) are required to report transactions to enable the ATO to determine if an individual has exceeded their $1.6m pension transfer balance cap.

The principal purpose of the Instrument is to set out the timeframe under which the Transfer Balance Account Report (TBAR) is to be provided to report transaction data relating to members of superannuation funds and life insurance companies.

The TBAR is required to be lodged, no later than 10 business days after the end of the month in which the relevant reporting event occurred, or such later date as the Commissioner may allow. While the Instrument establishes the due date for lodgment of the TBAR, the date can be deferred by the exercise of the Commissioner discretion under s 388-55 of Sch 1 to the TAA. Penalties may be applied for failure to lodge on time in the approved form.

SMSFs

Following industry consultation, the ATO said it intends to provide some administrative concessions for self-managed super funds (SMSFs) to support their transition to event-based transfer balance cap reporting which will be announced and communicated separately. [Thomson Reuters note: A practitioner article by Peter Burgess of SuperConcepts sets out aspects of the likely ATO transitional approach to event-based reporting for SMSFs during 2017-18: see 2017 WTB 32 [1108].

Reporting events

Superannuation funds and life insurance companies are required to report the following items that result in a credit or debit in an individual’s transfer balance account:

  • superannuation income streams in existence just before 1 July 2017;
  • superannuation income streams that commence or begin to be in the retirement phase on or after 1 July 2017;
  • commutations;
  • compliance with a commutation authority issued by the Commissioner;
  • certain limited recourse borrowing arrangement (LRBA) payments;
  • personal injury (structured settlement) contributions;
  • superannuation income streams that stop being in the retirement phase; and
  • any other relevant transactions.

Date of effect

The instrument will commence on the day after it is registered, and will apply from 1 October 2017.

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Downsizing a home: contributions of proceeds up to $300,000 – draft legislation

On 21 July 2017, Treasury released draft legislation to implement the 2017-18 Federal Budget proposal to allow people aged 65 or over to make additional non-concessional contributions up to $300,000 from the proceeds of selling their home from 1 July 2018. The details are set out in the Exposure Draft – Treasury Laws Amendment (Reducing Pressure on Housing Affordability) Bill 2017.

Proceeds from sale of home

The measure will apply to capital proceeds received from the disposal of an ownership interest in a dwelling in Australia (excluding a caravan, houseboat or mobile home) that is a main residence (partial or full) for CGT purposes and has been held for a minimum of 10 years. Either the individual or their spouse must have owned the home for the 10 years up to the point of sale. If the person’s spouse is not on the title with them, both can still make a downsizer contribution.

Downsizer cap

This downsizer contribution cap of $300,000 will be in addition to the existing caps. It will also be exempt from the contribution rules for people aged 65 and older (work test for 65-74 year olds, and no contributions for those aged 75 and over), and the restrictions on non-concessional contributions for people with total superannuation balances above $1.6 million.

The maximum downsizer contribution is $300,000 per contributor (ie $600,000 for a couple) although the contribution must come from the capital proceeds of the sale price. For example, if a couple sells their home for $500,000, their combined downsizer contributions are limited to $500,000 (in any combination, but no more than $300,000 for either of them). If an individual sells a home for $250,000, her or his downsizer contributionis limited to $250,000.

The contribution (non-deductible) must be made within 90 days after the home changes ownership (generally the date of settlement). A person can make multiple downsizer contributions within the 90 days, provided that they do not exceed the $300,000 cap and met all other criteria. However, a person cannot make a subsequent downsizer contribution, even if they sell another qualifying house.

Note that a person is not required to make any subsequent purchase of another dwelling after selling their home and making a downsizer contribution. So a downsizer can move into any living situation suitable for them, regardless of its size or cost. See also the Treasury fact sheet, Reducing barriers to downsizing.

Social security implications

While the family home is currently totally exempt from the Age Pension assets test, any sale proceeds contributed to superannuation will count toward the assets test.

Date of effect

Subject to final legislation, downsizer contributions will only apply to home sales where the contract of sale is entered into on or after 1 July 2018.