Technical update: expenses, capital gains and TBAR www.accurium.com.au P | 1800 203 123
Agenda Let’s get technical… TBAR Capital gains and losses Deductibility of expenses 2
Transfer Balance Account Reporting www.accurium.com.au P | 1800 203 123
Frequency of reporting obligations One-off test An SMSF must report annually or quarterly Frequency is based on the total superannuation balance (TSB) of fund members at the later of: – 30 June 2017 if a member had a pre-existing income stream or where the first member started their first retirement phase income stream during the 2017 – 18 year, or – 30 June the year before the first member starts their first retirement phase income stream. Where all members of SMSF have TSB < $1million report annually, else quarterly ATO states that once reporting framework is set it is locked in for the life of the SMSF – Do not re-assess reporting frequency as member balances change over time – Frequency of reporting applies to all members in the SMSF – Can choose to report more frequently 4
Working out TSB Could be spread across multiple providers ATO say SMSF trustees must self-assess their members' total superannuation balances when determining what reporting framework applies Expected to demonstrate have taken a fair and reasonable approach to assess members' TSB – Use principles set out in ATO valuation guidelines – Consistent valuations for all purposes e.g. TSB, TBC, CGT relief – Information may not yet reported to ATO, or visible on MyGov, are expected to find out value of non-SMSF superannuation interests TSB at 30 June generally equals – Current account balance of accumulation phase, account-based pension interests + existing transfer balance account of other income streams – We are confirming definition of ‘other income streams’ with ATO 5
Frequency of reporting Example I John and Jane have an SMSF, at 1 July 2017 – John had $1,320,000 in an ABP – Jane had $560,000 in accumulation By 1 July 2018 would have reported John’s TBA credit of $1,320,000 John had a pre-existing income stream at 1 July 2017 and total super balance > $1mill SMSF must report quarterly – within 28 days after the end of the quarter in which an event occurs 6
Frequency of reporting Example I: John & Jane reporting quarterly SMSF must report all required events within 28 days after the end of each quarter – Events which occurred in 2017-18 and first quarter 2018-19 must be reported by 28 October 2018 2017-18 and first quarter 2018-19 events: – John took pension payment $53,000 and lump sum of $100,000 in 2017-18 – Jane commenced an ABP on 1 June 2018 with $575,000 – Jane took pension payment of $30,000 on 15 July 2018 – John made lump sum of $25,000 on 21 September 2018 By 28 October 2018 must report: – TBA debit of $100,000 for John (lump sum) – TBA credit of $575,000 for Jane (pension commencement) – TBA debit of $25,000 for John (lump sum) 7
Frequency of reporting Example II Fred has an SMSF, at 1 July 2017 – $895,000 in an ABP in SMSF – $50,000 in accumulation in a retail fund By 1 July 2018 would have reported Fred’s TBA credit of $895,000 Fred had a pre-existing income stream at 1 July 2017 and total super balance < $1mill SMSF must report annually – no later than the due date for lodging the annual return for the income year in which events occur 8
Frequency of reporting Example II: Fred reporting annually SMSF must report all required events no later than the due date for lodging the annual return for the income year in which events occur – Events which occurred in 2017-18 due no later than when submit the 2018 annual return – Generally 15 May 2019 2017-18 events: – Fred took pension payment $45,000 on 12 May 2018 – Fred made concessional contribution of $25,000 on 15 June 2018 to retail fund NO reporting required with 2017-18 annual return as no TBAR events 9
Frequency of reporting Example II: Fred reporting annually SMSF must report all required events no later than the due date for lodging the annual return for the income year in which events occur – Events which occur in 2018-19 due no later than when submit 2019 annual return – Generally 15 May 2020 2018-19 events so far: – Fred’s balance 1 July 2018 in SMSF is $925,000, Retail fund balance of $78,000 – Fred rolled over $80,000 from retail fund to SMSF and commenced ABP on 23 September 2018 By the time submit 2019 annual return report: – TBA credit $80,000 for Fred (pension commencement) Even though Fred’s TSB now > $1mill still report annually as set when first reported for TBAR 10
Frequency of reporting Example III Kim, Kylie and their daughter Katherine have an SMSF, at 1 July 2017 – Kim had $1,500,000 in non-retirement phase TRIS – Kylie had $650,000 in accumulation phase – Katherine has $320,000 in accumulation phase – No other superannuation outside SMSF No pre-existing retirement phase income stream at 1 July 2017 , no reporting at 1 July 2018 Kim turned 65 on 19 August 2018, TRIS converts to retirement phase Kylie retired and commenced ABP on 24 September 2018 These are the first retirement phase income streams for SMSF, look back at previous 30 June to set frequency of reporting: – A member (Kim) had TSB > $1mill on 30 June 2018 and so fund must report quarterly 11
Frequency of reporting Example III: Kim, Kylie and Katherine reporting quarterly SMSF must report all required events within 28 days after the end of each quarter – Report first quarter 2018-19 events by 28 October 2018 TBAR events from 1 July 2018 to 30 September 2018: – Kim TRIS converts to retirement phase $1,510,000 on 19 August 2018 – Kylie retired and commenced ABP on 24 September 2018 with $675,000 By 28 October 2018 report: – TBA credit $1,510,000 for Kim (TRIS retirement phase conversion) – TBA credit $675,000 for Kylie (pension commencement) 12
Reporting sooner Sometimes you must If a member exceeds their transfer balance cap must report the following sooner than the fund’s normal reporting obligations: – Value of voluntary member commutation in response to excess transfer balance determination within 10 business days from end of month of commutation – Value of commutation in response to commutation authority within 60 days of date of issue of commutation authority ATO encourage earlier reporting of fund rollovers in/out of SMSF to avoid incorrect excess transfer balance determinations – Avoid double counting due to difference in timing of reporting by APRA-regulated fund and SMSF 13
Reporting sooner Example: avoiding double counting Chris is 78 and the sole member of his SMSF – Chris has a TBA of $970,000 from his ABP balance at 30 June 2017 – SMSF has annual TBAR obligations – The current value of ABP in the SMSF is $925,000 Chris decides to wind up the fund and rolls over his ABP to a retail fund on 28 September 2018 – The retail fund receives the rollover and commences an ABP with the balance – Retail fund will report TBA credit for Chris of $925,000 within 10 business days after the end of the month (by COB 12 October 2018) Chris does not need to report the commutation event in the SMSF until he completes the tax return for 2018-19, which might be as late as 15 May 2020 – SMSF reports annually: TBA = 9700,000 + 925,000 = 1,895,000 => Excess of $295,000 – SMSF reports early: TBA = 970,000 - 925,000 + 925,000 = 970,000 => No excess 14
What’s happened so far Excess transfer balance assessments from the ATO SMSFs were required to report pre-existing income streams at 30 June 2017 by 1 July 2018 During 2017-18 ATO issued approx. 2,000 excess transfer balance determinations to individuals where an SMSF was listed as default provider In April 2018 ATO started issuing excess transfer balance tax assessments to SMSFs who previously received an ETB determination and rectified the excess Next TBAR due 28 October for SMSFs reporting quarterly for events which occurred in 2017-18 and first quarter 2018-19 15
Excess transfer balance determinations Complying with a determination If an ETB determination is received don’t ignore it, action must be taken – Review for accuracy, client can view details of what has been credited to their TBA via myGov – Tax agents will see through ATO’s ‘online services for agents’, currently in private beta phase – Capped DB income streams will not be listed in the default commutation notice ETB determination = pension amounts in excess of TBC + excess transfer balance earnings Common causes: – Didn’t act to reduce pensions before 1 July 2017 – Didn’t take into account all pensions including capped defined benefit income streams Commute the excess amount (including cents) by due date – Complete TBAR for commutation no later than 10 business days after end of month – Delays or not commuting full amount may cause ATO to send commutation authority 16
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