THE ATO ASSESSMENTS ISSUED FOR EXCESS SUPER PENSION BALANCES

The ATO has started issuing excess transfer balance (ETB) tax assessments to self managed super fund (SMSF) members, or their agents, who had previously received an ETB determination and rectified the excess.

The ATO said these paper ETB tax assessments are sent to SMSF members (or their professionals), and not to the fund. It’s then up to the member to decide how to cover the ETB liability for exceeding their $1.6 million pension transfer balance cap. The ATO said individuals can use assets from outside super, or they can access their super and either:

•       take a lump sum from any accumulation interest they hold;

•       make an additional commutation of their income stream; or

•       make a larger than usual one-off pension payment.

As the member has prima facie met a condition of release, the ATO said it doesn’t need to issue a special release authority to super funds to allow the individual to access their super.

The ATO warned that SMSF members may receive an ETB assessment even if they didn’t receive an ETB determination. If they have rectified the excess before they were assessed for a determination, they are still liable for the ETB tax, the ATO said. However, SMSF members who were covered by the transitional rules for excesses not exceeding $100,000, and rectified in full by 31 December 2017, will not receive an ETB tax assessment.

ETB tax is due and payable 21 days after the assessment is issued. A general interest charge will accrue if any amount remains unpaid after the due date. ETB tax is calculated on the ETB earnings from when the individual started to have an ETB to when they are no longer in excess. The tax rate is set at 15% for an ETB in 2017–2018, but will increase to 30% from 1 July 2018 for second time offenders.

A person who receives an ETB assessment (or determination) should first ensure that their pension transfer balances have been correctly reported to the ATO before electing to access their super to pay their ETB liability. The ATO has also recently reported that it has identified a duplication error in its systems which can result in an incorrect total superannuation balance (TSB) being displayed on ATO Online for some people.

If a taxpayer needs to access their superannuation to pay the ETB liability, it would generally make sense to first access a lump sum from any accumulation interest they hold. Subject to the individual’s circumstances, making an additional commutation of an existing income stream would generally be better than taking a larger than usual one-off pension payment. This is because a commutation will generate a debit for the pension balance account, while an additional pension payment will not result in a credit.

As always, consider the underlying tax components if an individual has multiple superannuation interests. While super pensions and lump sums are received tax-free from age 60, there may be estate planning benefits from first accessing the interest with the largest taxable component (subject to the individual’s other circumstances). Also note that, unlike superannuation benefits released pursuant to a release authority, super benefits accessed to pay an ETB liability will be subject to the proportioning rule.

If you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 14 Russell Street Toowoomba.