ATO issues super reform guideline on commutation

The Australian Taxation Office ("ATO") released Practical Compliance Guideline (PCG) 2017/5 on 27 April 2017. This is intended to resolve a practical difficulty facing SMSF members trying to comply with the $1.6m transfer balance cap and is regarded as an important practical means to assist taxpayers to comply with one aspect of the the superannuation reforms.

This guideline explains how SMSF members with pension balances in excess of $1.6m can request a pension commutation effective 30 June 2017, even though the amount of their pension excess is not determined until after 30 June 2017. This will avoid the need for SMSF members to estimate their excess pension balance and commute this amount before 30 June 2017. In effect the ATO is allowing a commutation request without the need to stipulate the amount of the commutation.

The instruction to be provided to the trustees will therefore not need to include a specific amount to be commuted because the amount will not be known at that stage. In those circumstances, if you sign one of these request forms this will constitute complying with the $1.6m cap without the need to physically move any excess amount back to the accumulation phase before 1 July 2017. 

The ATO will accept such a request as valid and sufficient if it complies with the guidelines. The request must also be irrevocable and the member must not enter into a similar agreement with any other funds. Further, the request and acceptance to commute must both be made before 1 July 2017.

Please contact us if you would like to discuss this or any aspect of the superannuation reforms.