Transfer Balance Cap commutation amount can be worked out later: PCG 2017/5

Commutations so that members are under the $1.6 million Transfer Balance Cap can be for an amount to be worked out later, according to the ATO.

The ATO says it will not apply compliance resources to the review of certain commutations made before 1 July 2017 that aim for a member to be under the Transfer Balance Cap, though with a number of conditions. This is contained in a Practical Compliance Guideline (PCG), which sets out how the ATO will administer the tax rules, PCG 2017/5: Superannuation reform: commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap.

The ATO notes, in the PCG, that a member may not know on 30 June 2017 the precise value of their superannuation interests supporting a super income stream.

“One strategy to address this is for the member to make a request, which is subsequently accepted by the trustee of the SMSF, to commute their superannuation income stream(s) by the amount that the value of the superannuation interests that support their superannuation income streams exceeds $1.6 million,” says the ATO, in PCG 2017/5.

The PCG says:

The Commissioner will not apply compliance resources to review the commutation of a superannuation income stream a member has in an SMSF that is made before 1 July 2017 where the request and acceptance to commute:

(a) are both made in writing. The agreement by the trustee may be documented as a trustee resolution
(b) are made before 1 July 2017
(c) specifies a methodology that allows the precise quantum of the amount commuted to be calculated (such amount may be ascertained at a later point in time)
(d) specifies the superannuation income stream which will be subject to the commutation. Where the request may cover more than one superannuation income stream, the request and acceptance will need to specify the different superannuation income streams that may be covered and the order of priority in which the commutations will occur, and
(e) do not conflict with a similar agreement to commute that the member has agreed to with a trustee of a different superannuation fund. Entering into an agreement with the trustee of one superannuation fund to which this Guideline applies in conjunction with the commutation of a specific amount from another superannuation fund does not in itself cause a conflict.

The ATO says the amount of the commutation is to be worked out by the SMSF trustee and reflected in the financial accounts for 2016/17 no later than the due date for the SMSF annual return for the year ended 30 June 2017.

There are also a number of other conditions in the PCG, including that the agreement to commute cannot be subsequently revoked after the date of agreement.

“If the agreement to commute or the governing rules of the superannuation fund allowed a discretion for either the member or the trustee of the SMSF to revoke the agreement, it would be questionable whether a valid commutation had in fact been effected before 1 July 2017.”

The PCG is proposed to apply both before and after the date of issue, however it does not apply to commutation requests made on or after 1 July 2017.

The ATO has also released a Law Companion Guide – LCG 2017/1: Superannuation reform: capped defined benefit income streams – pensions or annuities paid from non-commutable, life expectancy or market-linked products

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1 thought on “Transfer Balance Cap commutation amount can be worked out later: PCG 2017/5”

  1. How does PCG 2017/5 interact with section 294-30 of the Income Tax (Transitional Provisions) Act 1997 which provides the $100k /6 month rule. That is, does the PCG override the application of the excess transfer balance earnings provisions?

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