With the introduction of the transfer balance cap (TBC) regime from 1 July 2017, nearly five years ago (doesn’t time fly!), SMSFs are required to report certain transfer balance account (TBA) events that occur in relation to a member’s retirement phase pension. An APRA regulated fund is required to report a reportable TBA event as soon as practicable and no later than 10 business days after the event has occurred. However, this tight TBA reporting requirement does not apply to SMSFs, for now.
Concessional TBA reporting framework for SMSFs
An SMSF with be either an annual or quarterly reporter for TBA purposes. The frequency of reporting will be self-assessed by the SMSF either:
- at 1 July 2017 (the start of the TBC measure) where the SMSF had an existing retirement phase pension recipient member at that time; or
- when the SMSF first commences to pay a retirement phase pension to a member.
So, firstly determine whether the SMSF had any member who had a retirement phase pension at the end of the day on 30 June 2017. If so, then evaluate if any member of the SMSF, not just the one with a retirement phase interest, had a total superannuation balance of at least $1million as at 30 June 2017. If at least one member did, the SMSF is a quarterly reporter, if not, it is an annual reporter.
For an SMSF which did not have a member in receipt of a retirement phase pension on 30 June 2017 it is essentially the same, however, the test is applied in the income year that the SMSF first commenced a retirement phase pension for any member. In that income year, you do the same total superannuation balance checks on the prior 30 June details to determine the reporting frequency.
A quick point, a member’s total superannuation balance includes their retirement phase and non-retirement phase interests across all superannuation funds that they have any interest in, not just the SMSF.
Once the TBA reporting frequency is determined it will never change for that SMSF, no matter what happens with the member balances.
Due dates for TBA reporting
The due date for reporting a reportable TBA event will depend upon whether the SMSF is an annual or quarterly reporter.
For an SMSF that is a quarterly TBA reporter: must report events affecting members’ transfer balances within 28 days after the end of the quarter in which the event occurs.
For an SMSF that is an annual TBA reporter: must report this information at the same time as when its SMSF annual return (SAR) is due.
There are certain TBA events that must be reported earlier, they include:
- a voluntary member commutation of their retirement phase pension in response to an excess transfer balance (ETB) determination. This must be reported within 10 business days after the end of the month in which the commutation occurs; and
- responses to commutation authorities, which must be reported within 60 days of the date the commutation authority was issued.
An SMSF can report earlier
An SMSF can report events as they occur and the ATO encourages them to do so because it:
- helps members manage their TBA and avoid exceeding their personal TBC; and
- avoids incorrect excess transfer balance determinations being issued.
It also helps ensure the ATO’s calculation of a member’s personal transfer balance cap from 1 July 2021 is based on full and accurate information. Whilst we are well past the TBC indexation date, SMSFs that are annual TBA reporters still may not have reported all TBA reportable events that occurred during 2020-21 that may affect the member’s entitlement to TBC indexation.
Determining reporting frequency with change of fund membership
At a recent Accurium education event we considered the following scenario:
- SMSF, the DogsRule Super Fund, has two members at 30 June 2021 with the following balances:
- Member 1, Mark – TRIS (not in retirement phase): $985k;
- Member 2, Kylie – accumulation: $715k.
- Mark turned 65 on 19 August 2021 and the TRIS moved into retirement phase – the SMSF’s first retirement phase pension and first reportable TBA event.
- Member 3, Katherine joined the fund and rolled over $1.32m, effective 15 December 2021 (their 30 June 2021 TSB was $1.31m – all held in a retail fund).
The question considered was whether the SMSF was an annual or quarterly reporter for TBAR purposes. Keep in mind that the TBA reporting frequency is self-assessed by the SMSF, not by the ATO.
The reporting frequency will depend on whether the SMSF had “any members” with a prior 30 June total superannuation balance of at least $1m. The term “any member” and at what time it applies appears to be crucial for determining whether the SMSF was an annual or quarterly TBA reporter. There are four potential interpretations:
1. “any members” of the SMSF during the income year the SMSF first commences to pay a retirement phase pension.
This is the interpretation that we initially favoured. That is, consider all members of the SMSF in the 2021-22 income year, the year the SMSF first commences to pay a retirement phase pension. Based on their respective total superannuation balance at 30 June 2021, as at least one member, Katherine, had a total superannuation balance of at least $1m, the DogsRule Super Fund is a quarterly TBA reporter.
2. “any members” of the SMSF at the time the first retirement phase pension commences.
Applying this interpretation would result in the DogsRule Super Fund being an annual reporter. At the time the SMSF first commenced a retirement phase pension, 19 August 2021, Katherine was not a member of the fund and consequently only Mark and Kylie are considered for the purpose of the test. As neither of them have a total superannuation balance at 30 June 2021 of at least $1m, the SMSF is an annual reporter.
3. “any members” of the SMSF in the period from 1 July up to when the retirement phase pension commences. This would include members who were members on 1 July but left prior to the commencement of the first retirement phase pension.
As the DogsRule Super Fund had no members leave the SMSF during the period 1 July to 19 August 2021, the outcome would be the same as the prior interpretation, that is, the SMSF would be an annual TBA reporter.
4. “any members” of the SMSF as at the prior 30 June. That is, only members of the SMSF at the prior 30 June are considered for the TBA reporting frequency test.
a. Applying this interpretation would see only Mark and Kylie’s total superannuation balance as at 30 June 2021 being considered, resulting in the SMSF being an annual TBA reporter.
Reviewing the alternatives, our favoured interpretation changes from the first interpretation to the second interpretation, as it appears to provide the more fair, equitable and sensible outcome. However, we know that is not always the case with tax law. Consequently, we requested the ATO to confirm how the TBA reporting frequency test should be applied in this scenario.
In terms of the 4 outcomes outlined above, the ATO advised that they should apply the concession as set out in their web guidance, on their website (“Event-based reporting for SMSFs” – QC 54088 and “What and when to report” – QC 57300), where it is a simple affairs scenario that is, all members or balances in the SMSF remain the same or slight variations.
The ATO advised that the intent of the concessions was to provide relief for SMSFs with simple affairs where the delay in reporting would have minimal impact. The scenario (that we provided to the ATO) set out a change in membership and balances during the year and is more complex than a simple scenario that would apply: see Event-based reporting case studies.
The ATO further advised that member’s with more complex affairs such as interests across funds, multiple pensions in their SMSF or who routinely commute and restart retirement phase income streams in their SMSF, may experience delays when using annual reporting in having information to assist them manage their affairs and avoid inadvertent breaches of their transfer balance cap. In reply to our question as to whether the scenario is an annual or quarterly, they advised that where the affairs of the SMSF are simple and all members are under the TSB threshold of 1 million on 30 June, then annual reporting may be appropriate. Where the affairs are more complex and there is a lack of visibility of information that may impact on inadvertent TBC breeches, then this may not be appropriate and more timely quarterly reporting is required. The SMSF can choose to report earlier to ensure that they can better manage their affairs and avoid a breach of their transfer balance cap.
Whilst this may not be a definitive answer to the scenario, it does once again highlight the benefit of reporting TBA events soon after the event occurs. Timely TBA event reporting will help with the information in the member’s MyGov account and reduce the potential for a member exceeding their TBC.
It may all be moot
The above discussion may all be a moot point as the ATO is seeking to consult on streamlining the TBAR process: see  SMSF transfer balance cap events-based reporting arrangements.
One of the outcomes could be that SMSFs will have a single reporting regime, based on quarterly reporting. This will eliminate the need to determine the reporting frequency as there would only be one option, quarterly.
This information is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. The information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions.