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The client (aged 69) had a super balance at 30/06/2020 of $1.3m all in an account based pension. The client commuted the entire balance on 01/072020 into his accumulation account and on the same day requested that the amount of $1m be rolled from accumulation into a new account based pension. The client then drew an annual pension of $25,000 on 16/07/2020 satisfying the minimum withdrawal for the 2021 financial year. Neither the commutation nor the roll-in to the new account based pension were reported within 28 days following the end of the quarter in which the event occurred as required where the member balance exceeds $1m.
Both events were subsequently reported to the ATO on 07/02/2022. I realise that the ATO may impose a penalty for the late reporting.
Documentation dated 01/07/2020 for the commutation and rollover exist including the relevant minute.
This has the appearance of having been done retrospectively rather than prospectively - I cannot see however, that this is a reportable contravention.
I would welcome any comments on this situation.
Hi Ronald
The ATO requires quarterly TBAR reporting when any member has a total superannuation balance of $1M or more at 30 June the year before the member first starts their first retirement income stream.
If not a quarterly TBAR reporter can report on an annual basis by the date the Fund's annual return is due.
Yes in your example the quarterly TBAR reporting is due within 28 days of the quarter end. This has not been done and this normally would not be a reason to qualify an audit report. An auditor would normally address this by raising it in their year end management / trustee letter.
If pension commencement minutes were not done when the pension first started the auditor should qualify in relation to section 103 of SIS that states that trustees must keep minutes of all meetings and for a period of 10 years.
To support a pension being commenced a member should request in writing such a request to the trustees and the trustees should acknowledge the request and confirm that a condition of release has been me to allow the pension to be paid.
The ATO did release Tax Ruling TR 2013/5 "Income tax: when a superannuation income stream commences and ceases". The ruling states: "The commencement day can not precede the member's request or application" & that there is a need to review the Fund's deed in relation to the rules as to when a pension actually commences.
From the ATO ruling:
"When a superannuation income stream commences
73. There is no definition of 'commence' or 'commenced' or 'commencement day' as the terms relate to superannuation income streams in either the ITAA 1997 or the ITAR 1997. However, the term 'commencement day' is defined in the SISR 1994 in relation to a pension or annuity. The 'commencement day'[38] for a pension or annuity is the first day of the period to which the first payment of the pension or annuity relates.
74. As the definition of superannuation income stream relies on there being a pension under subregulation 1.06(1) of the SISR 1994, it is consistent with the legislative framework that the time at which a superannuation income stream commences for income tax purposes is aligned with the 'commencement day' for such a pension under the SISR 1994. The concept of 'commencement day' is used throughout the pension standards set out in regulation 1.06 of the SISR 1994. The concept is also used in regulation 1.07D of the SISR 1994, which places restrictions on the commutation of superannuation pensions, and in Schedule 7 to the SISR 1994, which prescribes the minimum annual payment requirements that must be met for account based pensions.
75. Aligning the approach with that taken for pensions in the SISR 1994, the 'commencement day' for a superannuation income stream is the first day of the period to which the first payment relates.
76. The first day of the period to which the first payment relates must be determined by reference to the governing rules of the superannuation fund, including documentation applying to the relevant superannuation income stream.[39] An example of documentation that is relevant in determining the commencement of a superannuation income stream is the product disclosure statement that may be required to be issued to members by the superannuation fund pursuant to the Corporations Act 2001.
77. If the governing rules of a superannuation fund provide that a superannuation income stream becomes immediately payable on the occurrence of a particular event, the commencement day for the superannuation income stream is the day on which that event occurs and not before.
78. The commencement day for a superannuation income stream may occur before the due date of the first payment depending on the terms and conditions upon which the superannuation income stream is payable.
79. However, the commencement day cannot occur prior to the day established as the commencement day in the terms and conditions agreed between the member and the trustee that will govern the superannuation income stream.
80. How the terms and conditions are agreed upon will depend on the particular facts and circumstances and will likely vary as between funds and products (superannuation income streams).
81. In some cases a member will apply to commence a pension by completing an application form specifying the frequency and amount of payments, or a default option, as appropriate. In other circumstances the fund may not have a formal application process. However, a member will still be required to request that a superannuation income stream commences, and agree to its terms and conditions with the superannuation fund trustee. The commencement day can not precede the member's request or application.
Thanks
SMSF AAA