Transfer balance cap debits covered by the change
The change applies when calculating the value of the debit arising when a non-commutable, life expectancy or market linked income stream that is also a capped defined benefit income stream (CDBIS) is commuted.
Most commonly these will be market linked pensions and annuities which commenced prior to 1 July 2017 and were not subsequently commuted in full. This includes market linked pensions which were CDBIS and continue to be paid to reversionary beneficiaries.
The change also applies to CDBIS which are:
- life expectancy pensions paid under sub regulation 1.06(7) of the Superannuation Industry (Supervision) Regulations 1994 (SISR)
- life expectancy annuities paid under a contract that meets the standards of sub regulation 1.05(9) of the SISR.
Transfer balance cap debits not covered by the change
These are debits arising:
- when market linked pensions which are no longer CDBIS are commuted
- for a deceased member on their death
- when CDBIS which are non-commutable lifetime pensions and lifetime annuities are commuted.
For more information, see Law Companion Ruling 2016/10.
Calculating the value of the debit
The debit value of the superannuation interest just before the full commutation is the amount of the original transfer balance credit in respect of the superannuation income stream less the sum of the following amounts:
- the amount of any transfer balance debits (other than a debit arising under item 4 of the table in subsection 294-80(1) of the Income Tax Assessment Act 1997 in respect of the income stream before the commutation
- the total amount of superannuation income stream benefits the person was entitled to receive before the start of the financial year the commutation takes place
- the greater of
- the sum of the superannuation income stream benefits paid during the financial year the commutation takes place
- the minimum amount required to be paid under regulations 1.07B and 1.07C of SISR or regulation 1.08 of the Retirement Savings Account Regulations 1997 during the financial year the commutation takes
- where the transfer balance debits that need to be considered are those debits arising out of a partial commutation of the income stream on or after 1 July 2017 – these include partial commutations arising out of a family law superannuation split.
Following a divorce or other relationship breakdown superannuation interests may be split by the spouse fully or partially commuting a superannuation income stream or by dividing the superannuation income stream payments.
It is only debits arising when an income stream is divided (a payment split) that are disregarded when calculating the value of this debit. Debits arising from a payment split are reported to us by the individual.
For more information, see Law Companion Ruling 2016/9.
The total amount of superannuation income stream benefits the member was entitled to receive before the start of the financial year the commutation takes place will be equivalent to the actual pension payments made between 1 July 2017 and the year the commutation occurs, provided that the payments are made in accordance with the requisite standards
In the year the commutation occurs, any income stream benefits paid prior to the commutation occurring are included in the calculation to reduce the value of the debit. If the commutation occurred part way through the year, then any benefits paid would be included up to commutation date.
Where the income stream started to be paid to a reversionary beneficiary on or after 1 July 2017 only the benefits the reversionary beneficiary was entitled to receive are considered when calculating the value of the debit.
For market linked income streams under 294-145 (6A) (c) the minimum amount would encompass the annual amount calculation which considers percentage variances in accordance with schedule 6 of the SISR.
Calculating and reporting the credit when a new income stream commences after the commutation of a CDBIS
Where a market linked or similar income stream that was a CDBIS is, or was, commuted and restarted on or after 1 July 2017, the income stream will no longer be a CDBIS.
You should calculate the ordinary value of the credit and ensure:
- the account status is 'non-capped defined benefit income stream' (for providers using MAAS)
- if you are a self-managed super fund (SMSF), the income stream is reported as an account based pension.
Where this income stream is a market-linked or life expectancy pension or annuity and it commenced prior to 5 April 2022, then the effective date is reported as 5 April 2022. This is to ensure that any excess transfer balance tax, if applicable, is calculated from when the new regulation commenced on 5 April 2022.
For more information, see Administrative requirements for TBAR due to law change.
Calculating and reporting the credit when the income stream recommences as part of a successor fund transfer (APRA funds only)
Where a market linked or similar income stream that was a CDBIS is, or was, commuted and restarted on or after 1 July 2017 under a successor fund transfer, the restarted income stream will be a CDBIS.
You will need to calculate the special value of the credit and ensure the account status in MAAS is 'market linked capped defined benefit income stream'.
For more information, see Successor and intra-fund transfer reporting protocol.
Changes to calculating a debit from the commutation of a capped defined income stream.