1
TBA reporting and
Actuarial certificate
issues explained
Based on our conversations with Accountants it would seem
there is confusion about some aspects of the new super
measures.
In this brief article I hope to sort some of this confusion out:
1. Reporting for Transfer Balance Cap purposes – in our last Superannuation News I
detailed what the new reporting regime timeframes are likely to be. Here is a link to that
article in case you missed it - http://bit.ly/2s25UHv
In the majority of cases the only time you need to report pensions for Transfer Balance
Account (TBA) purposes is commencements and partial or full commutations that occur
for any reason.
For a pension that commences and is never partially or fully commuted will, in many
cases, only ever have one TBA report made for it.
There may be some additional TBC reporting – for example spousal separations – but
this will occur in a minority of cases. (1 July 2017 is deemed to be a commencement for
pensions that were in place during the 16/17 financial year and continue to exist in July
2017.)
None of this is to under-estimate the task ahead in making sure funds comply with these
new reporting requirements.
2.
When is a fund segregated or unsegregated for tax purposes?
A fund used solely for paying pensions is deemed to be a segregated super fund.
If any pensions need to be commuted for TBA purposes then it is likely that fund will
become an unsegregated super fund especially where the fund has a lumpy asset such
as real estate or the trustees couldn’t be bothered allocating particular assets to their
pension accounts and accumulation accounts.
Take the following example – suppose a fund has two members and has $500,000 in a
bank account and owns a property worth $5.0 million with a cost base of $2.3 million.
That is, a net capital gain is $2.7 million. At this point in time they do not wish to sell the
real estate (and given we are in mid-June ’17 doing this before 1 July is impractical).
charteredaccountantsanz.com
2
Both members have account based pensions with total account balances of
approximately $2.75 million each.
Clearly money needs to be commuted from these pensions – approximately $1.15 million
each (assuming the pension’s documentation allows the commutation). The fund must
have paid the 16/17 regulatory minimum income payments for these pensions before the
commutation takes place.
This will obviously have an impact on the minimum income paid from each pension for
the 17/18 financial year.
As some action needs to be taken to comply with the TBA rules the CGT cost base uplift
is available.
In the fund’s financial accounts these commutations need to take place before 1 July
2017. Let’s assume they are done on 30 June ’17. If they are performed after that date
then Excess Transfer Balance Tax will apply (because each member’s TBA will have a
balance of more than $1.7 million from 1 July 2017).
When the commutations take place the fund becomes an unsegregated super fund and
on the same day also seeks to apply the CGT uplift.
As it is an unsegregated fund the fund is deemed to sell the asset on 30 June ’17 and
reacquire it on the next day for the same amount.
Do we need an actuarial certificate for the year given that the fund was only
unsegregated for one day?
This is a question of judgement and degree. In this case it would appear to be a good
idea to do this (more on this in a moment).
However over what period of time will the actuarial certificate be required? In previous
years, and in situations such as this, an actuary would have given a certificate that
applied for the whole year.
Until now this practise has been used across the SMSF sector. But the ATO are arguing
that an actuary can only give you a certificate (for tax exemption purposes) for the period
in which the fund used unsegregated or proportional accounting not for the period of time
that the fund was fully segregated.
In the above example, without the actuarial certificate, it may not be possible to claim the
tax exemption on the deemed capital gain for portion of the assets used to pay the
pensions that remain in place.
In this example it would be worth considering deferring the tax payable on the portion of
the gain attributable to the accumulation assets and paying that tax when the asset is
finally disposed of assuming the intention is to retain the real estate for as long as
possible inside the fund.
In relation to needing actuarial certificates – in some cases SMSFs will move throughout
a year from being fully segregated to unsegregated back to segregated or other similar
combinations.
For example – suppose a fund commenced the 16/17 year only with pensions. During
the year a member of the fund made a contribution thereby making the fund
charteredaccountantsanz.com
3
unsegregated and then later used that contribution to commence a new pension which
would return the fund to being segregated.
As noted the ATO say that an actuary can only provide a certificate for the period of time
the asset was unsegregated. To prepare that certificate correctly an actuary will need
full and accurate opening and closing balances for the fund’s financial accounts for the
relevant period. This is impractical and costly for small entities such as SMSFs and
SAFs. (For simplicity reasons alone this example goes someway to explaining why, to
date, actuaries have been preparing actuarial certificates for funds in these situations for
the full year.)
Chartered Accountants ANZ and other industry associations have been talking to the
ATO about this issue for some time and once we have an outcome of these discussions
we will let you know.
charteredaccountantsanz.com