Heffron | First Excess Transfer Balance (ETB) determinations to be issued in January 2018

First Excess Transfer Balance (ETB) determinations to be issued in January 2018

Well we know what the ATO will be doing over Christmas. 

While we expect few SMSFs have lodged any reporting for the new Transfer Balance Cap (the $1.6m limit on transfers to retirement phase pensions), the ATO plans to start issuing its first excess transfer balance determinations from January 2018. These are the new notices that will alert individuals that they have exceeded the limit and set a deadline for taking action.  Those who don’t do so within the required timeframe will effectively have their entire pensions cancelled.

What issues will this present?

  • Unfortunately the first ETB determinations will be too late to help many of those with small excesses who potentially qualified for special treatment (retirement phase pensions at 30 June 2017 that were between $1.6m and $1.7m and no new pensions since then).  These people were able to avoid an excess altogether (and the associated tax consequences) but only if they took action to remove the excess before 31 December 2017.  The release of the first ETB notices in January 2018 will be too late to alert anyone who hadn’t taken the necessary action by 31 December 2017.  Note, members of SMSFs who formally documented the rollback of any potential excess above $1.6m on/before 30 June 2017 are not required to take action before 31 December 2017.  For these individuals, any potential excess has already been dealt with and simply needs to be finalised as part of the completion of the fund’s 2017 financial statements (by the due date for the lodgement of the SMSF Annual Return eg 15 May 2018);
  • We may see our first instances of the different timing requirements for APRA funds (which have been reporting since October 2017) and SMSFs (which are not yet required to report anything) creating “fake excesses”.  For example, a fund where the SMSF has reported the 30 June 2017 pension but not a subsequent commutation and rollover to an APRA fund may find that the only records the ATO has on file will be the 30 June 2017 pension and the new pension in the APRA fund.  The commutation will need to be reported urgently to avoid a misunderstanding by the ATO.

We expect the latter problem will become a vastly bigger issue in the future when all SMSFs have reported their 30 June 2017 pensions.  Despite all the concessions made to SMSFs to ease the reporting burden, we expect the work created by being out of sync with APRA funds and receiving unexpected excess notices from the ATO will prompt many to report early when members are transferring between the two systems.

If you receive an ETB determination for a client which you weren’t expecting, feel free to send us a copy for review.  It may be a case of a timing issue like that above or a problem with the information reported.