The ATO has begun issuing Excess Transfer Balance (ETB) determinations from January 2018.
On 1 July 2017, the Government introduced a Transfer Balance Cap (TBC) to limit the total lifetime amount that an individual can transfer to a retirement phase income stream. In 2017/18 the cap is $1.6 million.
Individuals who have exceeded their Transfer Balance Cap since 1 July 2017, and have not rectified the excess by commuting the required amount from retirement phase will be sent an Excess Transfer Balance determination from January 2018. The determination will state the ‘crystallised reduction amount’. This is the amount that must be commuted from a retirement phase income stream.
Modified rules apply to certain non-commutable income streams – a formula is applied to determine your “Special Value” (a one-off capital value).
The problem is that those individuals with non-commutable income streams don’t know what that one-off “Special Value” has been attributed to their income stream but the ATO has already been advised.
This may result in you being wildly over your personal Transfer Balance Cap and you won’t know until you receive the ATO determination. The result – on top of the amount they determine you have to commute penalties will apply …… but only after you have made a commutation. 2nd breaches result in double penalties.
It is important to note that market movements and pension payments do not result in a debit to an individual’s transfer balance account, and therefore cannot ‘correct’ an excess. New Transfer Balance Account Reporting “TBAR” rules – what constitutes a debit or credit in relation to the Transfer Balance Cap are being implemented right now.
Excess Transfer Balance tax is payable for all days where an amount is held in a retirement phase income stream in excess of the cap. Therefore, the sooner the individual takes action the less Excess Transfer Balance tax will be payable.
Non-commutable income streams exceeding the cap
Non-commutable income streams are assessed against the cap. The one-off “Special Value” of the income stream is determined by a legislative formula.
In most cases, these income streams do not retain the “Special Value” and cannot be commuted even where the assessment creates an excess against the Transfer Balance Cap.
Where non-commutable income streams are in excess of the transfer balance cap, the taxation of the pension payments will change.
The taxation of income above $100,000 will be subject to different taxation compared to those amounts within the cap.
Depending on the taxation source of the income stream ie. tax free, taxed or untaxed payment, ordinary taxation rates will apply for amounts above the 2017/18, $100,000 general capped non-commutable income cap ie. the $1.6m transfer balance cap divided by 16.
These new rules have caused so much confusion and unfortunately the 1st you will know will be a Excess Transfer Balance determination demanding a payment.
The ATO have not always been correct with their determinations and have advised some superannuation adminstrators that they have made errors.
We are happy to assist you through this minefield.
If you would like assistance or further information please contact us on firstname.lastname@example.org