Events based reporting and new requirements for SMSFs
Further to the Government’s tinkering in respect of the taxation of superannuation last year, additional requirements have been put into place for superannuation funds, including SMSF’s who will now have to report certain income stream events to the ATO. The Australian Taxation Office intends to implement this events based reporting system to track an individual’s transfer balance account and to direct any corresponding tax consequences if the individual’s $1.6m transfer balance cap is exceeded.
The tax rate is set at 15% for an excess transfer balance in 2017–18.
From 1 July 2018 onwards, the tax rate is:
All superannuation funds including SMSFs are required to report to the ATO if any of the members have an event which impacts their Transfer Balance Cap. The events which will need to be reported include pension commutations, commencement of a new income stream (account based pension), the cessation of a superannuation income stream and structured settlement contributions received after 1 July 2017.
The switch to event-based reporting for SMSF’s has had conflicting responses, with new rules being a substantial change for SMSF's, which up until this point have only had to report once a year. The Australian Taxation Office understands the substantial shift and therefore a transitional approach to event’s-based reporting has been introduced for SMSF’s in 2017/2018.
The ATO’s systems will be able to accept reporting from October 2017 for events occurring from July 2017. However, the transitional approach will result with most events occurring in the year ended 30 June 2018 needing to be reported by July 2018, whereby SMSF trustees must report on credits and debits that affect members’ transfer balance caps.
Once the transitional period ceases, the majority of events which occur from the July 2018 will need to reported within 10 business days after the end of the month in which the event occurred. The only exception to this will be in respect of the commencement of new income streams including the commencement value which will need to be reported to the ATO 28 days after the end of the financial quarter in which the new pension commenced.
The ATO has provided SMSFs with three options on how to report any transfer balance cap events. These include bulk data exchange, online forms and a paper form.
If an SMSF fails to report by the appropriate dates specified by the ATO, penalties for failure to lodge may be levied by the ATO. The penalty regime for SMSFs imposes penalties at the rate of one penalty unit (each unit is equal to $210) for each period of 28 days that the event remains unreported, up to a maximum of 5 penalty units.
The new rules may seem onerous, however they were designed so that members who are close to their $1.6 million transfer balance cap could get timely information to help them make necessary adjustments and minimise the potential tax consequences. For example, if a member has an excess transfer balance, it is imperative to report and rectify the excess balance as soon as possible and certainly before the due date imposed by the ATO to minimise excess transfer taxes.
Should you require assistance in relation to this matter or would like additional information, please call your relevant ESV engagement partner on 02 9283 1666.