Overview
If the minimum pension payments are not met during the financial year, the member's pension account will need to be commuted.
This article looks at how to commute the pension and ensure the TBAR event is reported correctly.
Commutation details
For income tax purposes, the commutation will occur at the start of the financial year in which the minimum pension payments were not met.
For TBAR purposes, the value of the commutation is the balance of the member's pension account at the end of the financial year in which the minimum pension payments were not met.
Instructions for Simple Fund 360
Complete the following steps to commute the pension account and ensure that the commutation event is reported correctly for TBAR purposes:
1. Determine the member's pension account balance at year-end. This is done by taking note of the member's pension balance after the year-end create entries process.
For example, the member balances as at 30/06/2019 is as follows:
If adjustments need to be made to the profit/loss or tax allocation, refer to the Member Allocation Worksheet.
2. Re-open the period and reverse entries to the previous period under Period Compliance.
In this example, reversing entries to 30/06/2018 financial year.
3. Commute the member's pension account on 1 July of that income year. This will convert the member's account from pension phase to accumulation phase as the member is no longer entitled to claim ECPI for that particular financial year.
In this example, commuting the pension account on 01/07/2017
4. Edit the TBAR event in the Transfer Balance Dashboard to have a debit amount of the amount noted in step 1, and change the date for the TBAR event to the end of the financial year (30/06/20XX)
For example, editing the TBAR Event to 30/06/2018, with the debit balance being: $1,593,431.25
5. Recreating entries can be done if required.
If required, existing pension payment journals (41600) may be coded instead to Benefits Paid (Lump Sum Payments) 46000 after converting the pension account to accumulation
References
Law Companion Ruling LCR 2016/9 (para. 55)
SMSFs: Minimum pension payment requirements – frequently asked questions