Self-managed super members need to remember that the deadlines for both transfer balance account reporting (TBAR) and annual return reporting for the 2017-2018 income year are now aligned on 15 May.

SMSFs with balances of less than $1 million – well over half of the more than 600,000 SMSFs in Australia – need to report transfer balance cap events to the Australian Tax Office annually.

Those with balances above this amount are required to lodge reports within 28 days of the end of each quarter.

What is TBAR?

Transfer balance account reporting allows authorities to track the amount of superannuation each taxpayer has moved in and out of the retirement phase.

However, many trustees are not aware these reporting requirements apply to all SMSFS in retirement phase, whether the $1.6 million cap applies to them or not.

For those whose superannuation accounts are held in larger super funds, their administrators will take care of the reporting for them. For SMSFs, trustees need to report events to the ATO themselves, or via a tax agent.

The transfer balance cap has been in place since 1 July 2017, and any retirement phase accounts in existence from that date on should have already been reported to the ATO. But any events affecting the value of an individual’s transfer balance account also need to be reported.

This includes the following types of transactions:

  • starting account-based pensions
  • ceasing account-based pensions
  • making lump sum withdrawals - known as commutations - from retirement phase accounts.

Death benefit income stream

Where individuals intend to withdraw more than the minimum required pension payment from their SMSF, taking these as lump sums has been a common strategy. Such partial commutations need to be reported, as they reduce the transfer balance account balance.

When taken as pension payments, withdrawals from retirement phase don't need to be reported.

The benefit of this strategy is that it reduces the balance of the individual’s transfer balance account, meaning there is more room under the cap to start future retirement phase pensions.

This can be particularly beneficial when receiving a reversionary pension – an income stream that reverts to another party, usually a partner, when a SMSF member passes – as the balance of this pension will add to the recipient’s transfer balance account.

For the large number of SMSFs whose members had total superannuation balances of less than $1 million on 30 June 2017, that will mean their first transfer balance account reports are due by 15 May 2019.

These reports need to include any transfer balance account events that occurred between 1 July 2017 and 30 June 2018.

Don't make costly errors

The ATO has also noted recently that a large number of transfer balance account reports received in the last year have had to be amended.

Opening balances of account-based pensions on 1 July 2017 may have changed. Trustees therefore need to take extra care with their minimum pension payments this year, and should ensure their minimum payments are based on the correct opening balance.

Underpayments can mean you lose the valuable tax exemption on earnings for the entire income year.