Events based reporting: What does it mean for SMSF trustees?

The first signs of disquiet in the SMSF sector started not too far into the current income year when confirmation signs started to emerge that the ATO, for the purpose of the then recently introduced transfer balance cap, would soon require SMSF trustees to report certain events on a real-time basis.

It is understood that the ATO had proposed to introduce event based reporting for all SMSFs from July 1, 2017, but recognised there were practical issues to deal with and that trustees would require sufficient time to transition to a model of more regular events-based reporting.

Thankfully the ATO has recently announced, after it conducted detailed consultation with the SMSF sector, that its implementation of event-based reporting (extended to start from 1 July 2018) will be limited to those SMSFs with members that have total superannuation account balances of $1 million or more.

ATO spells it out
But exactly what needs to be reported, by which funds, and how timely does the reporting have to be? To further prepare trustees for the compliance requirements starting next July, the ATO has developed further guidance for SMSF trustees about events that will need to be reported, and how often this will be required.

First of all, it points out that SMSFs with total member superannuation balances of less than $1 million can choose to report events that impact their members’ transfer balances at the same time that the SMSF lodges its annual return.

But after July 1, 2018, those with balances of $1 million or more will be required to report events affecting members’ transfer balances within 28 days after the end of the quarter in which the event occurs.

Common events include:

  • income streams a member was receiving just before 1 July 2017 continued to be paid to them on or after 1 July 2017 and that are in the retirement phase
  • new retirement phase income streams
  • commutations of retirement phase income streams.

This does not include investment earnings, gains or losses, or pension payments.

Events that need earlier reporting
If a member exceeds their transfer balance cap, the ATO says trustees must report events sooner, such as:

  • a commutation of an income stream, in response to an Excess Transfer Balance Determination issued to an SMSF member, must be reported 10 business days after the end of the month in which the commutation occurs
  • responses to Commutation Authorities must be reported within 60 days of the date the Commutation Authority was issued.

In some situations, the ATO strongly encourages trustees to report earlier. There are two situations to be aware of:

  • If an SMSF member rolls over their super benefit into an APRA-regulated fund and starts an income stream there, and it is not reported to the ATO by the SMSF at the time it happens, a double-counting of the member’s income streams will occur. This is because there will be a mismatch in timing of the reporting done by the APRA-regulated fund and the SMSF.
  • If an SMSF member was in excess at 1 July 2017 and rectifies it by 31 December 2017 but does not report the rectification to the ATO when the 30 June pension balances are reported, the ATO will not know that the member has rectified the excess.

In both these situations, there is real risk of the ATO incorrectly issuing an Excess Transfer Balance Determination and a Commutation Authority.

To avoid this, the ATO encourages trustees to report commutations prior to a roll-over at the time of the roll over, and a commutation that rectifies a small excess under the transitional rules at the time you report the initial income stream.

TBAR paper form changes
In response to your feedback, the ATO has updated the paper Transfer Balance Account Report (TBAR) form to:

  • allow a fund to report up to four events for a member on a single form
  • make it clearer on how to report a pre-existing income stream for a member.

Get the paper form here.