Some crucial clarity at last

Effectively at a quarter to midnight, we now have some crucial clarity at last.

Superannuation changes announced in last year’s Federal budget, revised in September 2016 and passed into law by the Senate on 23rd November 2016 have remained far from clear for far too long.  Only last Thursday did the ATO finally provide clarification on the unanswered questions in respect of pensions commuted before July 2017 in order to come under the pension balance cap.  Also, a far less common situation was only addressed on Friday; that being in respect of defined benefits schemes.

This is a joke. The never should have been any ambiguity – or at the very least, it should have been rectified within weeks of the changes coming into law late last year.  As it is, these two matters have been addressed so late that they will not feature in any tax or financial planning journal nor any seminar until at least June.

A commutation requires an exact figure to be nominated. The ATO now accepts that most members with a self managed super fund have no idea of their exact balance and will not be in a position to comply with the law as intended (fortunately, our clients do following the migration to Simple Fund 360 which, other than property, provides real-time valuations and balances).  The ATO has now finally confirmed that they will ignore strict requirements and permit commutations of an unspecified amount sufficient to bring the pension balance under $1,600,000 – in other words of an amount that is not quantified until the financial statements are prepared.

The ATO will accept such commutations where:-

  • The request by the member and acceptance by the trustee are in writing.
  • The trustee resolution acknowledging this is dated before July 2017.
  • Specifies the methodology which allows the precise quantum of the amount commuted.
  • Specifies which pension will be commuted (which remains one of the big tax and estate planning issues).
  • Does not conflict with a similar request to commute.

It is also important to note that the commutation cannot be revoked.

There is also the unstated issue that commutations must be made in accordance with the trust deed. If that deed does not permit such ATO approved commutations, then the fund will be in breach of SIS regulations.  This may require some to upgrade their trust deed.

Whilst this all clarifies one issue, there are still many financial planning matters to consider such as which pension(s) is commuted and on what assets will Capital Gains Tax relief be obtained.

At MRS, we will spend today planning for your success tomorrow.

At MRS, we will spend today planning for your success.