BONUS Commutation requests and ATO reviews: What you need to know before June 30
In a recently released practical compliance guideline, the ATO sets out its administration approach in relation to super fund commutation requests. It is an essential piece of information for SMSF trustees because it explains which commutation requests will not be subject to an ATO review.
With the new superannuation rules taking effect on July 1, 2017, superannuation members with income streams that are valued in excess of $1.6 million will need to commute any excess by June 30 at the latest in order to not be over the transfer balance cap.
Eligible commutation requests
The guideline applies only to a commutation request and its acceptance by the trustee where both are in writing and made before July 1, 2017. All of the following conditions must be satisfied in relation to such commutation requests:
- a method is specified in the request that allows an exact calculation of the amount to be commuted
- the superannuation income stream, which will be subject to the commutation, is specified. If there are more than one income streams subject to commutation, the order of priority in which the commutations will occur must be stated
- the request is not in conflict with a similar commutation request that was accepted by a different superannuation fund.
Commutation requests must be non-revokable
A further warning from the ATO is that the trustee cannot and should not be able to revoke its acceptance to commute the amount as per the super fund member’s request.
If the agreement to commute or the governing rules of the superannuation fund allowed a discretion for either the member or the trustee of the SMSF to revoke the agreement, it would be questionable whether a valid commutation had in fact been effected.
Overall, certainty and irrevocability of the member’s request to commute, and of the trustee’s agreement, are paramount in staying within the pitch lines drawn by the practical compliance guideline.