Transfer balance cap
Seven steps to reducing excess transfer balances prior to determination
Prior to an excess transfer balance determination being issued by the ATO, if a client wishes to clear their excess transfer balance as quickly as possible, and thereby minimise any excess transfer balance tax, the following steps should be taken:
1 Confirm the client's transfer balance account balance
The client can check their transfer balance account balance by logging into my.gov. au and using the ATO linked service. It should be noted that this information may be delayed by up to two months and therefore may not accurately represent the client's transfer balance account. Alternatively, the member could contact the ATO and/or the retirement phase income stream provider(s) directly. It should be noted that the income stream provider will only be able to advise on the retirement phase income streams the client holds with that income stream provider.
2 Notify the ATO of any missing transfer balance debits
Clients are required to report certain transfer balance account events to the ATO themselves. Consult with the client to identify any missing transfer balance debits. Use the ATO form Transfer balance event notification form to report any of the events below directly to the ATO:
- structured settlement contributions made before 1 July 2007
- any of the following events that occurred on or after 1 July 2017:
- family law payment split
- the value of the client's retirement phase income stream reduced because of an act of fraud or dishonesty where the offender has been convicted
- the value of the client's retirement phase income stream reduced because some or all of the assets supporting the retirement phase income stream have been made available to the client's trustee in bankruptcy.
3 Determine excess amount (not including earnings)
Determine the amount of the client's transfer balance account that exceeds the $1.6 million transfer balance cap using the information from steps 1 and 2 above.
4 Check for capped defined benefit income streams
Confirm whether the client has any capped defined benefit income streams.
If the client is in receipt of any capped defined benefit income streams, the client's excess transfer balance (excluding notional earnings) is the lesser of:
- the excess amount (step 3) or
- the value of their transfer balance account minus the transfer balance account value of all capped defined benefit incomes streams.
5 Calculate notional earnings
Calculate the client's notional earnings that must be commuted. Notional earnings need to be calculated on the excess transfer balance up to the day the voluntary commutation will be processed (not the date of application for the commutation). See the Notional earnings section below for more detail.
Commute the excess transfer balance amount plus notional earnings by the usual commutation processes required by the particular income stream provider. The timing of this process should be confirmed ahead of time to ensure a sufficient amount of notional earnings is commuted in the timeframe expected. The amount commuted may be rolled back to accumulation (if not a death benefit) or withdrawn from superannuation.
7 Notify the ATO
If the commutation is made from an SMSF, report the voluntary commutation and the credit value of the income stream to the ATO as soon as possible. If the commutation is made from a large APRA fund, the fund will report the commutation to the ATO within 10 business days of the end of the month in which the commutation was made.
Last modified: Thursday, July 25, 2019