ATO guidance on commutation requests for SMSF members

Monday 08 May 2017

The Australian Taxation Office (ATO) has issued guidance outlining its compliance approach to reviewing commutations made by a member of a self managed superannuation fund (SMSF) to comply with the $1.6 million transfer balance cap.

As SMSF members may not know the precise value of their superannuation income streams as at 30 June 2017, it will be difficult for the member to know the exact dollar amount that needs to be commuted from the pension to avoid exceeding the transfer balance cap.

The ATO has indicated it will not review commutations made by an SMSF member before 1 July 2017 where the request and acceptance to commute:

  • are both in writing
  • are made before 1 July 2017
  • specifies a method for calculating the amount to be commuted
  • specifies the income stream to be commuted, or if multiple income streams are covered by the request, the order of priority for commuting the pensions
  • do not conflict with similar agreements the member has with the trustee of another fund

The amount of the commutation will need to be determined by the trustee, and reflected in its 2016/17 financial accounts, no later than the time the SMSF is required to lodge its annual return for 2016/17.

The agreement to commute cannot be revoked once made.

Further information

Australian Taxation Office, Practical Compliance Guidance PCG 2017/5: Superannuation reform – commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap, 27 April 2017

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