WHAT YOU NEED TO KNOW

In a recent update to the ATO website (QC 57301), the ATO reminds fund trustees that there are essential steps to follow when they are amending a transfer balance account reporting (TBAR) or responding to the ATO Commissioner’s commutation authority (CCA).

CORRECTING A PREVIOUSLY LODGED TBAR

If an SMSF discovers that a previously lodged TBAR included incorrect data, it will need to cancel the original reported event. If necessary, they will then need to lodge a second transfer balance account (TBA) report with the correct information. The SMSF cannot amend a previously lodged TBAR. It must be cancelled, and then a new TBAR must be lodged.

To cancel the original event:

• lodge a new form exactly how you initially reported it (including the incorrectly reported information); and
• use the additional field (Question 5, Section B: Cancellation on the paper TBAR form) to indicate the form is being lodged as a cancellation of a previous form.

This enables the ATO to match the SMSF’s cancellation request to the original lodgment.

After the cancellation TBAR form has been lodged, the SMSF can then lodge a new TBAR for the TBA event with the correct information.

RESPONDING TO A COMMUTATION AUTHORITY

A commutation is a notice issued by the Commissioner of Taxation to an SMSF when:

• an SMSF member has exceeded their transfer balance cap, and
• the ATO has sent them an excess transfer balance determination, and

they have either

• • not commuted the excess amount in the determination in full by the due date, or
  • made an election for the ATO to send a commutation authority to their fund to have the excess amount commuted.

Where an SMSF is issued with a commutation authority concerning a member, it must by the due date, being within sixty (60) days of the issue date:

• pay a superannuation lump sum by way of commutation (the commutation authority will detail the amount that must be commuted from a specified income stream for the SMSF member), or
• choose not to comply with the commutation authority because the member is deceased or because the ATO issued it in relation to an income stream that is a capped defined benefit income stream.

The SMSF must also:

• send the ATO a TBAR reporting the details of the commutation or why the SMSF has chosen not to comply with the commutation authority; and
• notify the SMSF member in writing that it has either complied or not complied with a commutation authority.

When completing the TBAR to report the action taken by the SMSF trustee in response to the commutation authority, the fund will record that they are responding to a commissioner’s commutation authority (CCA). In the paper form of the TBAR, this is answered at question 11 by checking the box next to the option “A response to a commutation authority”.

The ATO update also reminds trustees to report one of the following events in response to the commissioner’s commutation authority (CCA):

• complied with commuted in full (CC1)
• complied with commuted in part (CC2)
• not complied with as the member is deceased (CC3)
• not complied with as the income stream is defined benefit (CC4)

In the paper TBAR, the above options are listed in question 12.

IMPORTANT: If the SMSF does not respond to the CCA or tell the ATO why they have not done so, the relevant SMSF member’s income stream will no longer be considered in retirement phase. Assets supporting income streams not in retirement phase are not eligible for exempt current pension income (ECPI).

If the event is reported as ‘commuted in part’ due to exhausting amounts in the account, you will need to report the account as closed on the TBAR. In the paper form of the TBAR, this is advised in question 21. This will notify the ATO that there are no additional funds.

WE’RE HERE TO HELP!

If you have any issues, questions or feedback regarding our monthly SMSF Bulletin or if you’d like clarification or further advice on the content of this month’s edition or any other SMSF audit concern – don’t hesitate to reach out to me at +61 416 123 446 or trosati@rosatiwang.com.