- Commuting full or partial amounts
The Commutation Authority requires the fund to effect a commutation of the excess amount by the deadline stated. The ATO does not authorise a commutation after the deadline in the Commutation Authority.
The trustee must commute the full amount stated in the Commutation Authority. If a full commutation is not possible - for example, where the interest supporting the income stream is less than the value of the amount required to be commuted - then a partial commutation may be effected. This means the value of the interest is commuted and the account is closed.
When making a partial commutation, this must be notified in the Transfer Balance Account Report (TBAR) and must set out why the Commutation Authority has been partly complied with. Our earlier article on TBARs can be found here.
The trustee should discuss with the member whether to commute the amount into the accumulation account (retaining the concessional tax treatment) or as a lump sum outside of super.
- Notify member of commutation
The trustee must sign a written declaration notifying the member, in relation to the amount being commuted and the details of the Commutation Authority. This must be completed no later than 60 days after the issue date of the Commutation Authority. The trustee may otherwise face an administrative penalty.
- What if the member is deceased?
If a Commutation Authority has been received in respect of a deceased member, then the trustee is not required to comply. However, a TBAR must still be lodged and specify that the Commutation Authority has not been complied with for this reason.
- What if you don’t respond in time?
If you fail to commute the amount required by the Commutation Authority, or otherwise fail to state why you refuse to comply (using a TBAR) – then the income stream will cease to be in retirement phase. This means the income stream is no longer in the tax exempt environment. You may also be subject to penalties for non-compliance.
- How to complete the TBAR after commuting
When a Commutation Authority has been issued to a member, a TBAR must be completed and lodged with the ATO no matter whether a commutation is effected in full, partially or not at all. The TBAR must be lodged before the due date specified in the Commutation Authority. The TBAR must specify the member’s details, fund’s details, event details, account details and declarations by the trustee.
- Varying or revoking a Commutation Authority
If you disagree with a Commutation Authority you cannot object to it and the member cannot direct the trustee not to comply with it. In limited circumstances the ATO may revoke or vary a Commutation Authority once any outstanding information is received and processed e.g. where a commutation has already been effected and there was a delay in reporting to the ATO. However, this will not give the trustee more time to comply with the Commutation Authority.
More information from Maddocks
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
More Cleardocs information on related topics
You can read earlier ClearLaw articles on a range of topics, such as:
- SMSFs to report Transfer Balance Account events from 1 July 2018
- Commuting your super – are you ready?
- SMSF Auditors under the microscope: duty of care ‘qualified’
- From 4 to 6 SMSF members proposed after 1 July 2019
- Ratifying an incorrectly executed SMSF document
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