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  • Transfer balance cap – Commissioner's commutation authority

    A commutation authority is a notice we issues to a super fund when a member has exceeded their transfer balance cap and we have sent them an excess transfer balance determination. The member has either:

    • not commuted the excess amount in the determination in full by the due date
    • made an election for us to send a commutation authority to their fund to have the excess amount commuted.

    The commutation authority details the amount that must be commuted from the specified income stream for that member.

    On this page:

    What you need to do if you receive a commutation authority

    If we issue a commutation authority you must respond so that we can determine whether you have complied with your obligations. When you respond you must tell us whether:

    • you have complied with a commutation authority, including when you have
      • complied with the commutation authority in full by commuting the full amount required, including cents, from the income stream stated in the notice
      • complied with the commutation authority in part by commuting the maximum available release amount where this amount is less than the full amount required from the income stream stated in the notice
    • the maximum available release amount is nil because a commutation authority was issued to an account-based pension with statutory commutation restrictions (for example, a market linked pension)
    • the income stream account stated in the notice was closed before we issued a commutation authority
    • you have chosen not to comply with a commutation authority because
      • the member is deceased
      • it was issued in relation to a capped defined benefit income stream.

    Note: You must also notify the member in writing (within 60 days of the issue date of the commutation authority) when you comply or chose not to comply with a commutation authority.

    When you need to report

    You must lodge the transfer balance account report (TBAR) within 60 days of the date of issue on your commutation authority. Refer to your commutation authority for the lodgment due date.

    If you do not comply with the commutation authority by the due date, (that is, within 60 days of the issue date on the commutation authority) or tell us why you have not done so (using a TBAR), your member's income stream will stop being in the retirement phase from the due date on the commutation authority. This will affect your entitlement to exempt current pension income. You may also be liable for penalties or subject to compliance action.

    There is an administrative penalty if you don't notify your member of your response to the commutation authority within 60 days of the issue of the commutation authority.

    What you need to tell the member

    You must notify the member in writing (within 60 days of the issue date of the commutation authority) when you comply with a commutation authority and include the following information:

    • the member's name and address
    • fund name and ABN
    • income stream account number stated in the commutation authority, plus if applicable, the unique superannuation identifier (USI) and member client identifier
    • the issue date and due date of the commutation authority
    • the amount you were required to commute.

    If you have commuted an amount in response to the commutation authority you must also include

    • the amount you commuted
    • the date of the commutation.

    If you have chosen not to comply with the commutation authority because it was in relation to a capped defined benefit income stream, you must also include a statement to this effect.

    Note: You must declare on the correspondence that the information it contains is 'true and correct', followed by your signature.

    There is no specific ATO form. You can use your own business processes to comply and you will meet approved form requirements, so long as you include the above details in the correspondence you send to the member.

    Consequences of not responding by the due date

    If you do not comply with the commutation authority by the due date, (that is, within 60 days of the issue date on the commutation authority) or tell us why you have not done so (using a TBAR), your member's income stream will stop being in the retirement phase. This will affect their entitlement to exempt current pension income. You may also be liable for penalties or subject to compliance action.

    There is an administrative penalty if you don't notify your member of your response to the commutation authority within 60 days of the issue of the commutation authority.

    Note: Don't action a commutation authority if the due date has passed. To discuss your options, send an email to Super CRT

    Responding to a commutation authority

    When you can commute an amount, you should make reasonable efforts to contact the member and discuss their options. For example, whether to retain the commuted amount in an accumulation account or take it as a lump sum. If you cannot contact the member, you should commute the amount in a way that you judge to be in the member's best interests.

    Unless the commutation authority relates to a death benefit income stream, the member can choose to keep the commuted amount in an accumulation phase account or cash the amount out of the superannuation system.

    If the commutation authority relates to a death benefit income stream the commuted amount must be cashed out of the superannuation system.

    You don’t have authority from us to commute the member’s income stream after the due date on the commutation authority and the Commissioner of Taxation doesn't have the discretion to grant you an extension of time to respond to the commutation authority.

    Commuting the full amount

    You must commute the full amount, including cents, by the due date stated in the commutation authority, from the income stream stated in the notice. If you don't allow cents to be commuted, you must round up.

    You must lodge a TBAR by the due date to tell us you have complied in full.

    Commuting a partial amount

    If you can’t commute the full amount stated on the commutation authority because:

    • the amount is higher than the value of the interest supporting the income stream, you must commute the value of the interest and close the account. As part of calculating the value of the interest that can be commuted, you should take into account any pro-rata minimum pension payments that need to be met
    • the maximum available release amount is nil. This may apply if a commutation authority was issued to an account based pension with statutory commutation restrictions (for example, a market linked pension)
    • the income stream account stated in the notice was closed before we issued a commutation authority

    You must also lodge a TBAR by the due date to tell us you have complied in part.

    Example: Commuting a partial amount

    A member is receiving an income stream valued at $70,000 on 1 July 2018.

    On 1 October 2018 we issue you with a commutation authority for $100,000. You are required to commute the amount by 30 November 2018 (within 60 days of issue date).

    The member is receiving monthly payments of $525 so they have already received $1,575 to date. You decide to commute on 15 October 2018 therefore you will need to pay the minimum pension amount before you make the commutation. The minimum annual amount is $6,300 (the member is 86 so their minimum pension payment is 9% of the balance on 1 July 2018).

    The pro-rata amount is calculated by multiplying the annual amount by the number of days in the period, then dividing by the number of days in the financial year.

    In this example:

    $6,300 × 107 ÷ 360 = $1,850.

    You make another minimum pension payment amount of $275 to ensure that the minimum pension payment standards will be met up to the date of the commutation.

    The remaining $68,150 is commuted and retained in an accumulation account in the fund.

    You lodge a TBAR reporting that you have complied with the commutation authority in part and report a commutation value of $68,150 and that the account is closed.

    End of example

    Commuting – deceased

    If you have chosen not to comply with a commutation authority notice because the member is deceased, you must also lodge a TBAR by the due date to tell us this.

    Note: You don’t need to report the death of a member on the TBAR for any other reason.

    Commuting – defined benefit

    If you have chosen not to comply with a commutation authority notice because it was issued in relation to a capped defined benefit income stream, you must also lodge a TBAR by the due date to tell us this.

    Example: Commuting a defined benefit

    You reported a member has an account-based pension with a value of $2.0 million

    You receive a commutation authority requiring you to commute an amount from this pension.

    You review your records and identify that this is a capped defined benefit income stream.

    You lodge three TBARs to:

    • cancel the original incorrect information
    • correctly report the original pension as a capped defined benefit income stream
    • report that you’re choosing not to comply with the commutation authority because it relates to a capped defined benefit income stream.
    End of example

    What to do if the pension account number has changed

    In some instances the pension account number reference you use to identify an income stream may have changed since the income stream was reported to us. For example, the income stream reported to us as account 123 is now referred to as account 123A.

    In these instances we may send a commutation authority identifying the income stream that needs to be commuted, which uses the account number you initially reported to us.

    You’re still required to commute the identified income stream, even though the reference you use has changed.

    Reporting methods and lodgment

    Most APRA funds are transitioning to the member account attribution service (MAAS) and member account transaction service (MATS), however reporting a response to a commutation authority is still required to be reported on the TBAR.

    Lodge a TBAR by either:

    You must have a current Australian business number (ABN) to use an electronic reporting channel. Our electronic reporting channels are the most efficient method of TBAR lodgment and will automatically send reports to the correct processing area.

    See also:

    Amending or cancelling an incorrect report

    If you have made an error in your reporting you will need to cancel the original event. To cancel the original event you will need to lodge a new form exactly how you originally reported it (including the incorrectly reported information), but you will also use an additional field to indicate the form is being lodged as a cancellation of a previous form. This enables us to match your cancellation request to the original lodgment.

    If you want to amend information reported previously you will need to send us two reports. The first report must be lodged to cancel the previous form and a new report must be lodged to provide the correct information.

    If you previously cancelled a report and want to undo the effect of the cancellation, do not try to cancel the cancellation request. In this case send us a new report to provide the original information.

    Note: If you need to re-report you must ensure that you lodge the cancellation first before sending the correction to avoid duplication.

    What to do if you or your member disagree with the commutation authority

    If either you or your member disagree with the commutation authority:

    • you can't object to the commutation authority
    • your member can't direct you not to comply.

    The commutation authority only authorises you to commute the specified income stream.

    If you commute another income stream, you have not complied with the commutation authority. The member is now at significant risk of having their assets removed from retirement phase twice, given this commutation does not remove your obligation to comply with the commutation authority.

    To minimise the impacts on your member you should report the member initiated commutation to us as soon as possible. We may be able to revoke the commutation authority we have sent you.

    If the member has sufficient funds in their preferred account to commute the full amount set out in the commutation authority and you consider you have time to commute that income stream and report it to us as a member commutation in time for us to revoke the commutation authority we have sent you, you may consider choosing to do so.

    If you follow the member’s request you need to report this to us as soon as possible, no later than the due date stated in the commutation authority, to allow us to revoke the commutation authority. If you don't report this to us in time for us to do this you will still need to comply with the commutation authority we have issued to you. The consequences of not complying with the commutation authority will still apply, with adverse consequences for your member.

    If you think the amount on the commutation authority doesn't take into account a prior commutation this may be because the member commuted their income stream after the due date on the ETB determination or there was a delay in reporting the commutation to us. You will need to report this member commutation event to us as soon as possible; no later than the due date stated in the commutation authority, to allow us to vary or revoke the commutation authority. If you don't report this to us in time for us to do this, you will still need to comply with the commutation authority as well as report the member commutation.

    If the member disagrees with the way we calculated their excess, then they can seek an extension of time to lodge an objection to the ETB determination. However, this doesn’t remove your obligation to comply with the commutation authority by the due date, once it’s issued.

    If an objection is lodged to the ETB determination and we allow the objection in full, then we will revoke or amend the commutation authority, if we are able to do this, by the due date. Otherwise, you’ll still need to action the commutation authority by the due date.

    Instances when we may be able to vary or revoke a commutation authority

    In limited circumstances we may be able to vary or revoke a commutation authority once we receive and process any outstanding information. For example, if you think the amount on the commutation authority doesn’t take into account a commutation by the member then this may be because the member commuted their income stream after the due date on the ETB determination or there was a delay in reporting the commutation to us.

    However, varying your commutation authority won’t give you more time to comply.

    For example, if we issued a commutation authority with a due date of 30 November and we receive information that allows us to vary it on 1 November, you will still only have until 30 November to action the varied commutation authority.

    What happens after you have complied with the commutation authority

    The table below provides information on what we will do next after you have responded to the commutation authority, based on your situation.

    Table 1: Our action on commutation response

    Your situation

    Our action

    You comply with the commutation authority in full

    After you lodge a TBAR, we will send the member an ETB tax notice of assessment.

    You tell us the member is deceased

    After you lodge a TBAR, we will send the member's estate an ETB tax notice of assessment.

    You comply with the commutation authority in part and the account is closed, or if you didn’t comply because the income stream is a capped defined benefit income stream

    After you lodge a TBAR we will consider whether the member has other retirement phase income streams that are not capped defined benefit income streams. If they do, then we will send commutation authorities to the providers of those income streams until the excess is resolved. If they don’t resolve the excess, we will send the member a Notice of non-commutable excess transfer balance. If we send the member this notice, they will receive a debit in their transfer balance account to resolve their excess transfer balance. Once the member is no longer in excess we will send them an ETB tax notice of assessment.

    You comply with the commutation authority in part and report the maximum available release amount is nil, but the account is still open (for example, because it’s a market linked pension)

    We won’t send the member a Notice of non-commutable excess transfer balance after we have determined that they have no other retirement phase income streams that are not capped defined benefit income streams. In these circumstances the member will potentially be perpetually in excess and we may send an ETB tax notice of assessment periodically.

    See also:

    Last modified: 23 Jul 2019QC 54147