Act now to avoid exceeding the $1.6m transfer balance cap

A member of a SMSF may need to take action before 1 July 2017 to ensure that they do not exceed the $1.6 million transfer balance cap by requesting the trustee of the SMSF to commute some or all their superannuation income stream(s) to be rolled-over as an accumulation interest within the SMSF or withdrawn from the SMSF as a lump sum payment.

As the member may not be in a position on 30 June 2017 to know precisely the value of the superannuation interests that support the superannuation income streams, one strategy to address this is for the member to make a request, which is subsequently accepted by the trustee of the SMSF, to commute their superannuation income streams by the amount that the value of the superannuation interests that support their superannuation income streams exceeds $1.6 million.

The ATO 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:

• are both made in writing. The agreement by the trustee may be documented as a trustee resolution

• are made before 1 July 2017

• 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)

• 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

• 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.

The agreement to commute cannot be subsequently revoked after the date of the agreement. If the agreement to commute or the governing rules of the superannuation fund allowed a discretion for either the member or the trustee of the SMSF to revoke the agreement, it would be questionable whether a valid commutation had in fact been effected before 1 July 2017.

The attached guideline outlines the circumstances in which the ATO will not apply compliance resources to review commutations made before 1 July 2017 by a member of a self-managed superannuation fund (SMSF) to avoid exceeding the $1.6 million transfer balance cap. It applies to a member of a SMSF who requests an amount or amounts to be commuted from their superannuation income stream(s) to avoid exceeding the $1.6 million transfer balance cap, but does not apply in respect of commutation requests made on or after 1 July 2017.

ATO PCG2017/5: https://www.ato.gov.au/law/view/print?DocID=COG%2FPCG20175%2FNAT%2FATO%2F00001&PiT=99991231235958

Also attached is a flexible template, using the requirements in the ATO's PCG2017/5 for SMSF Trustees to use regarding commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap. To download this template, please click here.