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ATO recognises market-linked pension anomaly

The ATO has announced a common-sense solution to the unintended consequences of its treatment of situations where a market-linked pension has been commuted and subsequently restarted in relation to an individual’s transfer balance cap.

The regulator to this point had said market-linked pensions commuted before 1 July 2017 would be treated as having a transfer balance debit of nil rather than having a transfer balance debit recognised as equal to the special credit value assigned to the income stream as per subsection 294-145(1) of the Income Tax Assessment Act 1997.

However, the ATO has now acknowledged this treatment could cause an individual to exceed their transfer balance cap where a new market-linked pension is commenced subsequent to the commutation before 1 July 2017.

In CRT Alert 066/2018 issued last week, the tax office outlined what its practical compliance approach will be for individuals who find themselves in the above situation.

As outlined in the alert, the ATO said it will not take compliance action at this stage “if a fund does not report the transfer balance account events of the commutation or the commencement of the market-linked pension [or] if the transferring fund does not report the commutation and the successor fund does not report the new market-linked pension when the events occur as part of a successor fund transfer”.

Further, it has stipulated where the fund has reported the transfer balance debit for the commutation as other than nil, it will not apply any compliance resources to the situation.

“The government recognises the unintended consequences associated with the current law and is determined to ensuring smooth implementation of the 2016 super reform measures,” it said in the alert.

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