When a superannuation interest in retirement phase is subject to a family law split, there are two ways to report the Transfer Balance Account debit “event” depending on the type of payment split. Unfortunately, the ATO’s instructions are somewhat ambiguous and could lead to the wrong form being completed.
1. Commutation of retirement phase income stream
This is the most common case, especially for SMSFs: a couple separate, and the superannuation balance is subject to a payment split by transferring an amount (specified as either a dollar amount or a percentage of the balance) out of the member-spouse’s account and paid to the non-member spouse (either as a lump sum or as a rollover to the non-member spouse’s super account).
Where the amount is to be paid from the member-spouse’s pension account, the pension will need to first be fully or partially commuted.
The commutation is reported as a debit to the member’s Transfer Balance Account (TBA) under the general rules via a Transfer Balance Account Report (TBAR). Answer “A different transfer balance cap event” at Question 11, and “Member Commutation” at Question 14.
If the non-member spouse uses the member’s lump sum to start a new superannuation income stream, the new income stream will result in a credit to the TBA of the non-member spouse – also reported under the general rules via a TBAR.
For example, Don and Judy are trustees and members of their SMSF. Don is in receipt of a pension from the fund and his transfer balance is $1,000,000. In March 2019, he is required to transfer $500,000 to Judy as a result of their relationship breaking down – he transfers it from his pension account to her new account in a retail super fund.
Don’s transfer balance is debited by $500,000 and now stands at $500,000. Judy decides to commence an income stream with the full amount she receives, and receives a $500,000 credit in her transfer balance account. This is all reported on the general TBAR – Don’s event is a Member Commutation, Judy’s is a commencement of a new income stream.
2. Splitting of the pension payments
Less commonly, the family law payment split might split the income payments, as opposed to the underlying balance. The member-spouse retains complete ownership of the superannuation interest, but a portion of each payment they receive is directed to the non-member spouse. We expect this would be rare in an SMSF.
In this case, the fund is not responsible for reporting the event via a TBAR. Instead, the member is required to report it on a “Transfer Balance Event Notification” form available for download from the ATO website here.