The Australian Taxation Office (ATO) has released Practical Compliance Guideline PCG 2017/5 which gives guidance as to how trustees of self managed superannuation funds (SMSFs) can commute pensions by 30 June 2017 in order to comply with the new transfer balance cap measure.
Importantly, the ATO accepts that it is not necessary for SMSFs to exactly know a member’s account balance at the time the pension is commuted (eg at 30 June 2017). Rather a pension can be commuted back to $1.6 million with the balance of the pension being commuted as a lump sum into an accumulation account. This balance would be determined later in accordance with the financial statements of the SMSF.
PCG 2017/5 also contains the following comments in relation to the documentation effecting the commutation:
- It must be in writing and made before 1 July 2017
- It must specify a methodology that allows the precise quantum of the amount commuted (such amount may be ascertained at a later point in time)
- It must specify which pension(s) is to be commuted
- It must not contain any discretion to the trustee as to the amount to be commuted or which pension will be commuted
- It cannot be conditional on other actions occurring
- It must not be revoked
- It can apply with references to benefits in multiple superannuation funds (if drafted correctly)
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