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  • Managing your transfer balance account

    Transfers into and out of retirement phase are referred to as credit or debit events. Your transfer balance account is calculated by keeping track of these events and is used to determine whether you have exceeded your transfer balance cap.

    All of your retirement phase income streams are taken into consideration, including capped defined benefit income streams and market linked pensions.

    The value of your superannuation interests is calculated by your superannuation fund and reported to us. If you believe the value reported is incorrect you should contact your superannuation fund.

    Credits to your account

    Generally, a credit arises in your transfer balance account when you become the recipient of a superannuation income stream that is in retirement phase.

    The following events will cause a credit to your transfer balance account:

    • superannuation income streams that were in existence just before 1 July 2017 and you continue to receive them after that date - including both reversionary and non-reversionary death benefit income streams
    • new superannuation income streams that commenced after 1 July 2017 - including both reversionary and non-reversionary death benefit income streams
    • repayments from limited recourse borrowing arrangements
    • excess transfer balance earnings.

    These credits increase your transfer balance account and reduce your available cap space.

    Superannuation income streams

    An income stream is a series of periodic benefit payments to a member. This includes both reversionary and non-reversionary death benefit income streams and can be either:

    • account-based income streams (the amount supporting the income stream is allocated to a member's account)
    • non-account based income streams, including capped defined benefit income streams (these are income streams that don't have an identifiable account balance in the member's name. The member receives regular payments, usually guaranteed for life).
    Account-based income stream

    If you were receiving an account-based superannuation income stream just before 1 July 2017, and you continued to receive it after that date, your fund will have reported the value on 30 June 2017 of all the superannuation interests that support the income stream in retirement phase that you were receiving at that time.

    If you started an income stream after 1 July 2017, your fund will report the commencement value of that superannuation income stream. This includes death benefit incomes streams and market linked pensions. Transition-to-retirement income streams (TRIS) that are in retirement phase are also included in the transfer balance account.

    Capped defined benefit income streams

    Capped defined benefit income streams are treated differently because you usually can’t commute these income streams, except in limited circumstances.

    Capped defined benefit income streams are:

    • lifetime pensions, regardless of when they commence
    • lifetime annuities that existed just before 1 July 2017
    • life expectancy pensions and annuities that existed just before 1 July 2017
    • market-linked pensions and annuities that existed just before 1 July 2017.

    The modified value of a capped defined benefit income stream is referred to as the 'special value', this value will be calculated by your superannuation provider.

    A capped defined benefit income stream will not give rise to an excess transfer balance by itself, however you may have an excess transfer balance when you have a combination of both an account-based income stream and a capped defined benefit income stream. If the combined value of the account-based income stream and the special value of the capped defined benefit income stream is in excess of the transfer balance cap then you will be required to commute the excess transfer balance from the account-based income stream.

    See also:

    Reversionary income streams

    The value of your reversionary superannuation income stream is calculated at the time you first become entitled to payments from the income stream. This is usually the date of death of the original member. A credit arises in your transfer balance account for this value, twelve months after the date of death; however your fund will report this to us once you become eligible to receive it.

    Example: Receiving a reversionary death benefit income stream

    Mia retires and starts an account-based income stream valued at $1 million on 1 January 2018. Mia’s transfer balance account starts on 1 January 2018 and is credited with $1 million (the value of her retirement phase income stream). She still has $600,000 of transfer balance cap space available.

    On 20 September 2018, Mia’s husband Marc dies. Marc’s reversionary account-based income stream (valued at $800,000 at the time of his death) reverts to Mia.

    Mia’s transfer balance account will be credited with $800,000. However, the credit will not arise in her transfer balance account until 20 September 2019, 12 months after Marc’s death, giving Mia time to plan her financial affairs.

    On 2 June 2019, Mia partially commutes $200,000 out of her account-based income stream as a lump sum, creating a debit of $200,000 in her transfer balance account.

    On 20 September 2019, Mia’s transfer balance account is credited with $800,000 (the value of Marc’s income stream on the date of his death). Mia’s transfer balance is $1.6 million and she has no transfer balance cap space remaining.

    End of example
    Transactions in Mia's transfer balance account

    Date

    Transaction

    Debit

    Credit

    Transfer balance

    1 Jan 2018

    Superannuation Income stream

    $0

    $1,000,000

    $1,000,000

    2 Jun 2019

    Member Commutation

    $200,000

    $0

    $800,000

    20 Sep 2019

    Superannuation Income Stream - Reversionary

    $0

    $800,000

    $1,600,000

    Limited recourse borrowing arrangements

    A credit will arise in your transfer balance account in relation to a payment made by a superannuation provider under a limited recourse borrowing arrangement (LRBA) that was entered into on or after 1 July 2017 where:

    • the payment results in an increase in the value of your superannuation interest that supports your superannuation income stream that is in the retirement phase, and
    • your superannuation interest is in a self-managed superannuation fund (or another complying superannuation fund with less than 5 members).

    See also:

    • LCR 2016/9 Superannuation reform: transfer balance cap

    Excess transfer balance earnings

    If you have exceeded your transfer balance cap we will credit your transfer balance account with the earnings that accrue on your excess transfer balance amounts.

    We will calculate your excess transfer balance earnings and advise you of the amount credited to your excess transfer balance account when we issue an excess transfer balance determination.

    If you have not received a determination and want to rectify your excess prior to receiving a determination you need to ensure that you remove the correct amount of earnings, the earnings are calculated up to the date that the excess was removed from retirement phase.

    Excess transfer balance earnings will continue to accrue until your transfer balance is equal to or less than your transfer balance cap and you will pay excess transfer balance tax on those earnings.

    See also:

    Debits to your account

    Debits to your transfer balance account reduce your transfer balance and increase your available cap space.

    Pension payments and investment losses from your retirement phase income streams are not commutations and they are not debits to your transfer balance account.

    Events that cause your account to be debited include:

    • commutations
    • structured settlement contributions,
    • losses due to fraud and bankruptcy
    • family law payment splits
    • superannuation income streams that      
      • cease to be in the retirement phase
      • fail to comply with the standards
       
    • non-commutable excess transfer balance amounts.

    Commutations

    Your transfer balance account is most commonly debited when you fully or partially commute a retirement phase income stream. This is usually from an account based income stream. A commutation is the exchange of part or all of the value of your income stream for a lump sum. The lump sum can either be:

    • paid out of the superannuation system
    • retained in an accumulation phase account (unless it is a death benefit income stream).

    When you receive a superannuation death benefit as a lump sum this must be taken out of the superannuation system and not left in an accumulation phase account.

    You can choose to request a commutation from your superannuation provider if you are in excess of your transfer balance cap.

    If you choose not to commute the excess, we will issue a commutation authority to your superannuation provider to have the excess removed from the retirement phase.

    If a superannuation income stream is fully or partially commuted, your transfer balance account is debited by the value of the commutation. The debit arises when you receive the lump sum, not at the time you instruct the superannuation provider to commute the income stream. Unless you are commuting a superannuation death benefit income stream you can choose to transfer the lump sum to an accumulation account or withdraw it from the superannuation system.

    Example: Commutation and excess transfer balance

    Paolo starts an account-based income stream valued at $2 million on 1 August 2016. The value of his income stream is $1.95 million on 30 June 2017 due to investment losses. Paolo’s transfer balance account starts on 1 July 2017 and is credited with $1.95 million.

    Paolo’s transfer balance exceeds his transfer balance cap of $1.6 million, so he has an excess transfer balance of $350,000 at the end of 1 July 2017. Excess transfer balance earnings accrue on the excess and are credited to Paolo’s transfer balance account daily.

    On 1 August 2017, Paolo partially commutes this excess, taking $353,000 as a lump sum out of superannuation. This covers his excess transfer balance ($350,000) and the earnings accrued during the 31 days he had an excess ($2,745.15).

    A debit of $353,000 arises in Paolo’s transfer balance account on the date he receives the lump sum.

    Paolo’s resulting transfer balance is $1,599,745.15, so he no longer exceeds his transfer balance cap. Paolo will also be liable to pay excess transfer balance tax.

    End of example
    Transactions in Paolo's transfer balance account

    Date

    Transaction

    Debit

    Credit

    Transfer balance

    1 July 2017

    Transfer balance account commences

    $0

    $1,950,000

    $1,950,000

    2 Jul – 1 Aug 2017

    31 days of excess transfer balance earnings

    $0

    $2,745.15

    $1,952,745.15

    1 Aug 2017

    Partial commutation

    $353,000

     

    $1,599,745.15

    Structured settlement contributions

    A structured settlement is a payment for a personal injury you have suffered. A debit will arise in your transfer balance account for any structured settlement amounts you receive and contribute to superannuation.

    A debit arises in your transfer balance account when you make the contribution of the structured settlement amount or at the time that you first have a transfer balance account, whichever is later.

    For the debit to arise in your transfer balance account, the structured settlement contribution must be made to a superannuation fund within 90 days of being received, or the structured settlement order coming into effect, whichever is later.

    You must notify your superannuation provider that the contribution is being made under this exemption before, or when, making the contribution to enable them to treat it appropriately and report it correctly to us.

    Slightly different rules apply to structured settlements received before 10 May 2006. These rules remove the requirement that you make the contribution within 90 days and the requirement that you notify your superannuation provider. You will need to report these to us via a Transfer balance event notification form.

    When structured settlement contributions were made before 1 July 2017, the debit for the structured settlement contribution you have made will include any investment growth that had occurred on the structured settlement contributions.

    Example: Structured settlement contribution

    Taj has an account-based income stream valued at $700,000 on 30 June 2017. His transfer balance account starts on 1 July 2017 and is credited with $700,000.

    In late 2017, Taj is seriously injured in a car accident. He undertakes legal proceedings against the driver of the other car and is awarded a court ordered structured settlement of $3.5 million on 15 May 2018.

    On 16 May 2018, Taj contributes the $3.5 million into his fund. He notifies the trustee of his superannuation fund and the ATO that the contribution is a structured settlement contribution.

    Taj immediately commences another income stream with his structured settlement contribution. Taj’s transfer balance account is credited by $3.5 million for the income stream commenced using the structured settlement contribution. It is also debited $3.5 million for the same contribution. Taj never has an excess transfer balance, because the credit and debit arise on the same day (16 May 2018), and excess transfer balance is measured at the end of each day.

    Taj’s transfer balance is $700,000 at the end of 16 May 2018. Taj may start another account-based income stream valued up to $900,000 without exceeding his transfer balance cap of $1.6 million.

    End of example
    Transactions in Taj's transfer balance account

    Date

    Transaction

    Debit

    Credit

    Transfer balance

    1 July 2017

    Transfer balance account commences

    $0 

    $700,000

    $700,000

    16 May 2018

    Structured settlement contributed to superannuation fund

    $3,500,000

    $3,500,000

    $700,000

    Failure to comply with pension or annuity standards

    If your superannuation fund fails to comply with the rules or standards for your income stream, that income stream may cease to meet the definition of a 'superannuation income stream'. This means it will no longer be eligible for the earnings tax exemption.

     

    Example: Failure to comply with pension or annuity standards

    Yukari starts an account-based income stream valued at $1.5 million on 28 January 2018 from her self-managed superannuation fund (SMSF). Her transfer balance account starts on 28 January 2018 and is credited with $1.5 million (the value of her retirement phase income stream).

    At the end of 2017–18, Yukari’s SMSF has not paid her required minimum pension amount, which is a failure to comply with the pension rules and standards. For transfer balance cap purposes, Yukari's income stream stops being a superannuation income stream in the retirement phase at this time.

    On 30 June 2018, the value of Yukari’s income stream is $1.45 million (as a result of investment losses). Due to the SMSF’s failure to comply with pension standards, Yukari’s transfer balance account is debited by $1.45 million on 30 June 2018.

    If the SMSF trustee wishes to receive an earnings tax exemption for Yukari’s interest, Yukari must cease her income stream and start a new account-based income stream that complies with the relevant pension rules and standards.

    Yukari’s transfer balance is now $50,000, so she can start a new account-based income stream valued up to $1.55 million without exceeding her transfer balance cap.

    End of example
    Transactions in Yukari's transfer balance account

    Date

    Transaction

    Debit

    Credit

    Transfer balance

    28 Jan 2018

    Transfer balance account commences

    $0

    $1,500,000

    $1,500,000

    30 Jun 2018

    Income stream ceases due to failure to comply with pension standards

    $1,450,000

    $0

    $50,000

    Failure to comply with a commutation authority

    If your superannuation fund fails to comply with a commutation authority, the relevant income stream will cease to be in the retirement phase. The income stream will cease to be in the retirement phase from the start of the income year that the fund failed to comply with the commutation authority. This means it will no longer be eligible for the earnings tax exemption for that income year. A debit will arise in your transfer balance account equal to the value of your income stream at the end of the period specified in the commutation authority.

    Example: Failure to comply with commutation authority

    Luke commences an account-based income stream valued at $1.9 million on 1 July 2018 from his SMSF. His transfer balance account starts on 1 July 2018 and is credited with $1.9 million. He has exceeded his transfer balance cap ($1.6 million), and has an excess transfer balance of $300,000.

    On 24 September 2018, the ATO issues an excess transfer balance determination, requiring Luke to remove $306,495.92 (excess of $300,000, plus 85 days of excess transfer balance earnings).

    On 3 December 2018, the ATO issues the trustee of Luke’s SMSF with a commutation authority requiring them to commute $306,495.92 from Luke’s income stream. The SMSF trustee doesn't comply with the commutation authority within the 60-day time limit. As a result, Luke’s income stream ceases to be in the retirement phase from 1 July 2018 (the start of the income year), and is no longer eligible for the earnings tax exemption.

    On 1 February 2019, the value of Luke’s income stream is $1.88 million (as a result of investment losses). Due to the SMSF trustee’s failure to comply with the commutation authority, Luke’s transfer balance account is debited $1.88 million on 1 February 2019.

    Luke’s transfer balance is now $26,495.92. He will not exceed his transfer balance cap if he starts a new account-based income stream valued up to $1,573,504.08. Luke will also be liable to pay excess transfer balance tax.

    End of example

    Non-commutable excess transfer balance

    In some situations, you may have an excess transfer balance and no remaining retirement phase income streams that you can use to commute the excess from. This becomes an amount of excess transfer balance that you can't commute after being issued with an excess transfer balance determination.

    You may have a non-commutable excess transfer balance because the only retirement phase superannuation income streams you have are capped defined benefit income streams or because you are no longer a retirement phase recipient of any superannuation income stream.

    If your superannuation provider notifies us that you have insufficient value to commute to resolve your excess transfer balance, then you will have a non-commutable excess transfer balance and we will notify you in writing. The debit arises in your transfer balance account when we issue the notice.

    The above debits will be reported to us by your superannuation provider using a Transfer balance account report (TBAR).

    Replenishment debits

    There are a limited number of events that may result in an individual losing some or all of the value in their superannuation interests.

    • a family law payment split
    • a debit event from fraud, dishonesty or bankruptcy

    These debits are required to be reported to us by you on a Transfer balance event notification form (TBEN).

    Family law split

    Superannuation interests may be split as part of the division of property following a divorce or relationship breakdown. One party (the member spouse) will be required to provide a proportion of their retirement phase superannuation interests to the other party (the non-member spouse).

    For either spouse, the debit arises either when the payment split becomes operative (under the Family Law Act 1975) or when they start to have a transfer balance account (whichever is later).

    A payment split may involve the member spouse either:

    • commuting part of their superannuation income stream into a lump sum, which is then paid to the non-member spouse (this will be reported as a commutation by your superannuation provider and you don't need to complete a TBEN to notify us of this event)
    • retaining complete ownership of their superannuation interest but having a portion of each payment from their retirement phase income stream directed to the non-member spouse. (one spouse must notify us in writing on a Transfer balance event notification form).

     

    Example: Family Law Split  

    Nancy’s transfer balance account is credited with $1 million on 1 October 2017

    On 30 September 2018, as part of finalising her divorce, Nancy needs to transfer $500,000 of her superannuation to Michael. Nancy partially commutes her superannuation income stream by $500,000 and transfers it to Michael’s superannuation fund.

    Nancy’s transfer balance account is debited by $500,000.

    If Michael uses the $500,000 he receives to start his own superannuation income stream, he will receive a $500,000 credit in his transfer balance account.

    End of example

    Example: Family Law Split  

    On 1 July 2017, Bradley’s transfer balance account starts and is credited with $1.6 million.

    In 2020, Bradley and Angie get divorced and Bradley is required by family law to split 50% of his superannuation with Angie.

    As Bradley’s income stream can't be commuted, the payment split applies to the monthly payments from the income stream, with Bradley and Angie each receiving approximately $4,000 per month, commencing on 1 October 2020. Bradley notifies the ATO of the payment split.

    On 1 October 2020, Bradley’s income stream is still valued at $1.6 million. Bradley’s transfer balance account is debited by $800,000, being the proportion of all the income stream payments to be paid to Angie. This leaves Bradley’s transfer balance at $800,000.

    On 1 October 2020, Angie’s transfer balance account is credited with $1.6 million, as she is also receiving Bradley’s income stream for transfer balance cap purposes.

    Angie’s transfer balance account is then debited by $800,000. This reflects the proportion of Bradley’s income stream payments that he remains entitled to.

    Angie’s transfer balance is now $800,000, which reflects the proportion of Bradley’s income stream that Angie is entitled to.

    If Bradley fully commutes his income stream in 2025, 50% of the resulting lump sum will be paid to Angie under the terms of the payment split. Bradley and Angie will each receive debits of 50% of the lump sum in their transfer balance accounts.

    End of example

    See also:

    • Transfer balance cap
    • LCR 2016/9 Superannuation reform: transfer balance cap
    • LCR 2016/10 Superannuation reform: defined benefit income streams – non-commutable, lifetime pensions and lifetime annuities
    • LCR 2017/1 Superannuation reform: defined benefit income streams – pensions or annuities paid from non-commutable, life expectancy or market-linked products
      Last modified: 22 Mar 2019QC 54354