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$1.6M Transfer Balance Cap – Commutation request must be submitted before 1 July 2017

The ATO has released Practical Compliance Guidelines PCG 2017/5 to provide much needed clarity about the process that SMSF members and trustees need to follow to comply with the $1.6M transfer balance cap.

Members with pension interests that will be assessed and exceed the $1.6M transfer balance cap will have to take action prior to 30 June 2017 to ensure the appropriate commutation or partial commutation requests are submitted and confirmed by SMSF trustee/s. The ATO acknowledges that the actual amount of the commutation will not be known until the 2017 accounts are due for lodgement. These figures can be finalised when the 2017 accounts are finalised.

The Commissioner will not apply compliance resources to review the commutation of a superannuation income stream a member has in an SMSF that is made before 1 July 2017 where the request and acceptance to commute:

(a) are both made in writing. The agreement by the trustee may be documented as a trustee resolution
(b) are made before 1 July 2017
(c) specifies a methodology that allows the precise quantum of the amount commuted to be calculated (such amount may be ascertained at a later point in time)
(d) specifies the superannuation income stream which will be subject to the commutation. Where the request may cover more than one superannuation income stream, the request and acceptance will need to specify the different superannuation income streams that may be covered and the order of priority in which the commutations will occur, and
(e) do not conflict with a similar agreement to commute that the member has agreed to with a trustee of a different superannuation fund. Entering into an agreement with the trustee of one superannuation fund to which this Guideline applies in conjunction with the commutation of a specific amount from another superannuation fund does not in itself cause a conflict.

The amount of the commutation is required to be worked out by the trustee of the SMSF, and reflected in the SMSF’s financial accounts for the year ended 30 June 2017, no later than the due date of the SMSF’s annual return for the year ended 30 June 2017.

If your clients’ require advice in meeting these requirements prior to 30 June 2017, contact your Partners Wealth Group specialist on 1800 333 143, to discuss how we can help.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.