With 1 July 2017 fast approaching, many accountants and advisers are working feverishly to help clients needing to act before then to ensure they do not exceed the $1.6 million transfer balance cap. Requests are being made to the trustee of their self managed superannuation fund (SMSF) to commute some or all their pension phase superannuation income stream(s), and, either roll them over as an accumulation interest within the SMSF, or, withdraw them from the SMSF as a lump sum payment.

In theory, commuting amounts from pension phase is simple (i.e. pension balance(s) less $1.6 million equals the amount to be commuted). However, most SMSFs do not operate on real time reporting so a member will not know the amount of their pension balance(s) until well after 30 June 2017 – thereby making the task of determining the exact amount that needs to be commuted from pension phase under the new relevant tax laws, practically speaking, impossible. Acknowledging this practical difficulty, the ATO has issued a practical compliance guideline (PCG 2017/5 Superannuation reform: commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap (the Guideline)) setting out the Commissioner’s practical administration approach to the new laws. Where a taxpayer follows the guideline in good faith, the Commissioner will administer the law in accordance with the approach described in the Guideline.

Specifically, 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 member request and trustee acceptance to commute:

  • are both made in writing;
  • before 1 July 2017;
  • specifies a methodology to calculate the precise commutation amount. The precise commutation amount must be worked out by the SMSF trustee and reflected in the SMSF's financial accounts for the year ended 30 June 2017, no later than the due date of the SMSF's annual return for the year ended 30 June 2017;
  • specifies the income stream(s) subject to the commutation and, where there are multiple income streams, the order of priority in which the commutations will occur;
  • do not conflict with a similar agreement with a trustee of a different superannuation fund;
  • cannot be subsequently revoked or altered.

Additionally, the Guideline identifies the circumstances where the Guideline will not apply.

Please contact Thalia Dardamanis if you or your clients require assistance in preparing the relevant member request and trustee acceptance documentation before 30 June 2017.