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Compliance & Regulation

TBAR double counting bears tax penalty risks

The different rules governing the transfer balance account report (TBAR) for SMSFs compared with Australian Prudential Regulation Authority (APRA)-regulated super funds may easily lead to attracting an excess transfer balance cap determination and the associated tax penalty, a technical expert has warned.

Under the TBAR rules handed down late last year, SMSFs supporting at least one pension and no members with a total super balance of $1 million or more only have to report events affecting fund members’ transfer balance accounts yearly as part of the annual return.

However, APRA-regulated funds must report any events affecting members’ transfer balance accounts within 10 days of the end of the month in which the event in question occurred.

As a result of this disparity, SuperConcepts technical services executive manager Mark Ellem predicted an unfavourable situation may arise for a superannuant who commutes an existing pension in an SMSF with a yearly TBAR requirement and then rolls this pension amount into an APRA-regulated fund and immediately starts a pension upon completion of the rollover.

The potential problem may surface if the value of the original SMSF pension and the value of the new APRA-regulated fund pension exceed $1.6 million when added together.

“Unless the trustee of the SMSF reports the value of the commutation prior to the superannuation interest being rolled over to the APRA-regulated fund, the ARPA-regulated fund will report the transfer balance account credit arising from the new income stream before the SMSF advises the ATO of the debit,” Ellem pointed out.

“So you can see the mess we could end up with. The APRA fund has no choice – it must report within 10 business days after the end of the month. If the SMSF is an annual reporter, it can report the event way down the track.

“If that happens, the ATO will have recognised the original pension in the SMSF plus this new pension. They don’t know pension one was stopped and rolled over and pension two was then started. They just think it’s two pensions.”

He said the scenario presented a good illustration of the need to report transfer balance account events as they occur rather than when they are required to be reported.

“Even though we might have this leeway and carveouts for SMSFs that says we can have delayed reporting, is it going to be in our and our client’s best interest to delay,” he noted.

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