Federal Treasurer Scott Morrison has used a recent SMSF community address to emphasise the transfer balance cap introduced on 1 July should be regarded as a transitional measure only.
Speaking at the recent SMSF2017 Summit and Investment Expo in Sydney, Morrison said: “[The transfer balance cap] is assessed on the transfer into the pension phase. After that period of time, your fund can grow, once it’s in its pension phase, to whatever your successful investment will lead it to.
“The fund doesn’t have to remain below $1.6 million in perpetuity. I think that is one of the common misunderstandings about the transfer balance cap, that is, how much can go into the pension phase at that point of transition, and what happens after that is totally up to you. How much it earns and how much it grows.”
The Treasurer also took the opportunity to allay any fears SMSF trustees had over the reporting of pension-phase transfers and balances.
“On the reporting arrangements, events that happen – now, those events are commencing a pension phase, transferring funds from the contributions phase into the pensions phase – those events in the transitional year do not need to be reported until the annual tax return is lodged on the 28th of February 2018,” he noted.
“That means basically up until the end of February, what happens between July and February all gets to come out in the wash in your tax return.”
He also debunked the myth that the commencement value of an income stream had to be reassessed on a monthly basis and explained the proper reporting process of these arrangements.
“Where there’s a commencement value of an income stream, this does not need to be reported until 28 days after the quarter in which the commencement occurred,” he said.
“So once we get past this first transitional phase, let’s say you’ve transferred an asset, you might have a small shop, you might own an investment property or something like that, and you transfer that in. In the quarter that occurs, when that quarter ends, there is 28 days at the end of that period to conduct the valuation and to have that reported.”
In addition, he confirmed the government was not looking to ban the use of limited recourse borrowing arrangements.
“You’d be well aware of our position after the Murray inquiry that we’re not touching the arrangements around limited recourse borrowing arrangements,” the Treasurer noted.
“That was the recommendation made to us. We haven’t been convinced there is an issue with this when it comes to the SMSF sector [and] as a proportion of the investment property sector and the property sector more generally, it is quite small.
“Obviously, if we thought there was malfeasance there or there was issue there which were creating problems more generally in the economy, then we’d have a look at it, but there’s no evidence that has been presented to us to suggest that, so the Turnbull government has no plans whatsoever to change those arrangements,” he said.
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