Transfer Balance Cap reporting

By Martin Fowler - September 25, 2018

The Transfer Balance Cap (TBC) concept has now been in operation for a little over a year since its introduction. Super funds are required to report events that affect a member’s TBC. This article seeks to explain what these events are and the timeframe, specifically for self-managed super funds (SMSFs) in which they must be reported to the ATO.

Transfer Balance Cap (TBC)

To refresh your understanding, the Transfer Balance Cap (TBC) is the threshold that caps the amount of savings that can be transferred into the tax-free pension phase of superannuation by an individual.  The general TBC is currently $1.6 million and gets indexed to the CPI[1].  

Transfer Balance Account (TBA) and Personal TBC

A Transfer Balance Account (TBA) is opened by the ATO when you start your first super pension.  At this point, you will also lock in your personal TBC in line with the general TBC applicable at the time.  For instance, if you had commenced an Account Based Pension in FY 2018 with $1.6M, then your TBA would have recorded that event and your personal TBC is set at $1.6M.  Similarly, if you had instead commenced a pension with say, $600,000, your personal TBC is also locked at $1.6M.  However, the TBA will also reflect that you still have an unused cap amount of $1M, which gets indexed until it is fully used up. 

Therefore, the ATO use the TBA to track movements that affect your personal TBC.  It is important to note at this junction that not all movements impact your personal TBC.  For example, investment earnings that take your pension balance over the personal TBC does not result in an excess amount because market movements on your pension assets do not get reported and hence are not recorded on your TBA.  In addition, regular pension payments you receive from the income stream do not get tracked on your TBA.

What TBC events need to be reported?

All super funds must provide the ATO with a Transfer Balance Account Report (TBAR) when any one or more of the following events occur:

  • When you start an income stream, including a death benefit income stream and a pension that is converted from a Transition to Retirement Income Stream.
  • When you make a lump sum withdrawal from your income stream, also known as a ‘commutation’.  To re-iterate, regular pension payments are excluded from reporting.  As such your personal TBC does not get adjusted even if the pension balance is significantly reduced as a result of the regular draw downs. 
  • When the ATO requires you to remove the excess amount above your personal TBC.
  • When you make some limited recourse borrowing arrangement payments.
  • When you make contributions under the personal injury (structured settlement) provisions.

Under some circumstances, the individual must do the reporting to the ATO when it relates to:

  • Splitting of super income streams resulting from divorce.
  • Losses to income streams due to fraud, dishonesty or bankruptcy.

What are the reporting timeframes?

The timeframe in which to report the events depend on whether your income stream is in, for example, an industry/retail super fund[2] or a self-managed super fund (SMSF) and if it is in a SMSF, it then hinges on the members total super balance. 

As reporting by large super funds, such as REST, is automated and frequent, the member generally does not need to be concerned.  However, if you have a SMSF, it is important to be aware of the reporting dates as you are ultimately responsible for this obligation even if you have outsourced this function to a SMSF administrator or your advisor.  This is important as a breach of the personal TBC will result in costly fines.  Also, it is important to bear in mind that once the reporting timeframe is determined, it will apply permanently regardless of changes to the members total super balances in the future.

A SMSF needs to report the TBC event either annually or quarterly depending on the members total super balance (TSB) as at the later of:

  • 30/6/2017 if there was already a pre-existing pension or the pension started in 2017/18 financial year.
  • 30th June of prior year to the year in which the first pension is commenced.

This is best illustrated with some examples below, noting that a member’s TSB generally includes all super savings regardless of whether it is held in accumulation or pension accounts across all super funds.

Conclusion

To avoid costly fines, it is crucial to keep your TBA up to date by observing the reporting timeframes and be conversant with the reportable events, especially for those of you who have a SMSF.


[1] In increments of $100,000.
[2] Regulated by APRA. 

 

Copyright © 2018. The information provided is not personal advice. It does not take into account the investment objectives, financial situations or needs of any particular investor and should not be relied upon as advice. While the information is provided in good faith and believed to be accurate and reliable at the date of preparation, we will not be held liable for any losses arising from reliance thereon. We recommend investors consult their personal financial adviser to discuss suitability and application to their individual circumstances. Advisors at Pitcher Partners Sydney Wealth Management are authorised representatives of Pitcher Partners Sydney Wealth Management Pty Ltd, AFS & Credit Licence number 336950.

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