Overview
The ATO has issued a Practical Compliance Guideline (PCG 2017/5) for commutation requests made by SMSF members to the SMSF trustees before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap.
This request enables members to commute their excess retirement phase income streams to avoid breaching the cap, even though the value of their holdings and the amount of the commutation required may not be known until after 1 July 2017.
One strategy to address is for a member to provide an instruction, which is subsequently accepted by the trustee of the SMSF, to commute their retirement phase income stream/s by the amount that the value of the superannuation interests exceed $1.6 million by 30 June 2017.
Class has provided the following set of documents to specifically address this compliance requirement:
- a Request letter from the member to commute the excess over the general transfer balance cap of $1.6 million
- a Minute/resolution to specify the methodology allowing the precise quantum of the commutation amount to be calculated and which pension accounts will be subject to the commutation in order of priority
- an Acknowledge letter from the trustee to the member confirming the request has been approved and next course of actions
- This report is only available if the member has full account based pensions. It is not available for a member who has:
- No pension accounts
- Old style pensions, e.g. complying, term allocated
- Transition to Retirement Income Stream (TRIS) pension
To check whether a pension is a TRIS or not, you can run a period update and if the earnings derived consist of preserved component, then it is a TRIS (use Member Statement or Member Detailed Transaction Report to verify the component).
Transfer Balance Cap Commutation Letter and Minute
Report Parameters
Field Name |
Field Description |
Field Validations |
Example |
Output Format |
PDF or Rich Text Format available |
Mandatory radio button |
|
Output Destination |
You can select whether to download, view or publish to fund documents |
Mandatory radio button |
Download |
Last Period Update End Date |
Shows when the last period update was run |
Pre-filled text |
30/06/2017 |
Allocation Order |
It displays 4 different pension commutation allocation order |
Mandatory drop down |
Low to High Tax-Free % |
External Retirement Income Streams Exist |
It indicates whether a member has retirement phase income stream(s) outside of this SMSF. If yes, this needs to be taken into account to determine the total amount to be commuted. |
Mandatory radio button |
No |
Print Request Letter |
Yes or No to print the request letter |
Mandatory radio button |
Yes |
Date of Request Letter |
Enter a date for the request |
Mandatory date filed |
30/06/2017 |
Letter Note |
Can be edited by clicking on the Edit Note Contents button |
Free text |
|
Print Minute / Resolution |
You can choose whether to print the minute or not |
Mandatory field Yes / No |
Yes |
Meeting Date |
Date of the meeting for the pension commencement |
Mandatory date field |
14/02/2014 |
Meeting Address |
Address where meeting was held, if left blank will default to the fund address |
N/A |
|
Minute Note |
Can be edited by clicking on the Edit Note Contents button |
Free text |
|
Print Confirmation Letter |
You can choose whether to print the confirmation letter or not |
Mandatory field Yes / No |
Yes |
Date of Confirmation Letter |
Date of the confirmation letter was written |
Mandatory date field |
14/02/2014 |
Confirmation Note |
Can be edited by clicking on the Edit Note Contents button |
Free text |
|
Report Header |
Turns on the report header logo |
Mandatory Yes / No |
Yes |
Draft Watermark |
If draft report you can enable draft watermark on each page |
Mandatory Yes / No |
Yes |
Page Footer / Number |
A page footer with date and time stamp can be added or just page numbers |
Mandatory Yes / No / Page Numbers Only |
Page Numbers Only |
Signature |
Select Chairperson or All Trustees to sign the minute |
Mandatory radio button |
Yes |
If the Allocation Order (a mandatory field) is not selected when you produce this report in a Report Pack, then an empty zip folder or a blank PDF report will be generated.
FAQs
Q: Who should make this Pension Commutation Request?
A: This request should be completed by each fund member who is affected or is likely to be affected by the $1.6 million transfer balance cap. When you determine whether a member is affected or likely to be affected by the $1.6 million transfer balance cap, you need to consider the combined value as at 30 June 2017 of all of this member's pension accounts as well as superannuation income streams the member may have with other funds.
Class will generate this report for every member in the fund with a Retirement Phase Income Stream, even if the member's pension balance is below $1.6 million and therefore unlikely required to commute his/her pension to be below $1.6 million transfer balance cap. The pages for those members, therefore, should be discarded.
Q: What allocation order of superannuation income streams to commute will Class Support?
A: Class will support the following four orders of priority:
- Lowest to Highest Tax Free %
- Highest to Lowest Tax Free %
- Oldest to Newest (FIFO)
- Newest to Oldest (LIFO)
Q: When should the member make this request or the minute/resolution take place?
A: Ideally this request and minute/resolution should be made on or before 30 June 2017, in order to comply with ATO's PCG 2017/5.
Q: Can this request or the minute/resolution to commute the pension in order to stay below the $1.6 million transfer balance cap be revoked or altered after it is signed and lodged with the trustee?
A: As per PCG 2017/5 requirement, this member's pension commutation request cannot be revoked or altered by discretion exercised either by the members or trustees after the date of commutation request.
Q: What happens if a member also receives a superannuation income stream benefit from another fund?
A: The member will be required to provide the fund administrator/accountant/adviser with the 30 June 2017 balance of the superannuation income stream benefits they may have with other funds. With this additional information, you should be able to calculate this member's total retirement phase income stream balance and determine the excess superannuation income stream balance to be commuted as at 30 June 2017.
Class allows you to enter this balance from other funds in order to track this a member's transfer balance account and determine member's total super balance.
Q: When should the pension commutation take place?
A: Once you have determined the member's 30 June 2017 balance including the member's retirement phase income stream benefits from other funds, you can produce the interim member statement and financial statements for 30 June 2017, contact your members/trustees to determine the amount to commute and initiate the commutation process in Class.
Q: Where can I find more information about this?
A: Class has created a web page on Super Reforms: https://www.class.com.au/super-reforms-2016/ and a User Guide Reference: Superannuation Reform Reference.
A good starting point will be:
- PCG 2017/5: Superannuation reform: commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap
- TR 2013/5 Income Tax: when a superannuation income stream commences and ceases