A taxpayer is being obliged to pay an amount of excess transfer balance (ETB) tax, even though he took active steps to reduce his pension account balance to be under the cap by following the directions he believed to be instructional on the ATO website.
In a case that has just been decided by the AAT in favour of the ATO (Lacey and Commissioner of Taxation (Taxation)  AATA 4246), the applicant, Ray Lacey, had received notice that his pension account was over the $1.6 million transfer balance cap (TBC) and that he needed to reduce that balance to avoid ETB tax. He took steps to do so, which were to transfer a certain amount into his accumulation account and then rely on regular pension drawdowns to take care of the rest.
In doing so, Lacey had relied on an ATO webpage dealing with these matters. Unfortunately that webpage had used the word “remove” rather than the more accurate term “commute” (more below). Also unfortunate was that the transitional arrangement period the ATO had put in place for the transfer balance account rules to settle in had just passed (30 June 2017), meaning that certain specified TBC “events” were required when managing the cap.
The TBC law does not include drawdowns as one of these events, but neither are earnings (these are the “comings-and-goings” of the account balance and are not counted as that could place a fund that hovers around the $1.6 million mark in administrative shambles). Terms used in the TBC law are that amounts can be “rolled-back”, or “commuted” (that is, taken as a lump sum).
In short, the type of withdrawal is required to be clearly identified, and guidance issued on the matter, such as PCG 2017/5, dated 27 April 2017, had clearly put forth these requirements.
Another bad-timing issue for Lacey was that while be believed he was on track to take the balance below the cap, his bit-by-bit approach (via the regular drawdowns) took him beyond the six-month window the rules had in place for excesses of $100,000 or less (see note at the end of this ATO page).
An interesting aside to the case stemmed from the applicant’s challenge to the ETB determination, in that the ATO’s use of the word “remove” instead of “commute” could be taken to be misleading. In the wash-up of even considering the merits or otherwise of this challenge was the revelation that the AAT actually had no jurisdiction to make a judgment on allegations that ATO materials led a taxpayer to make an error.