Death and transfer balance cap reporting

A question that has already come up in our practice several times relates to clients who died before 1 July 2017.

In particular, if the deceased had a retirement phase pension, what (if anything) should be reported for that pension when the Fund’s first TBAR (Transfer Balance Account Report) is lodged later this year.

Like most superannuation issues, it depends.

What if the pension was non reversionary?

If the pension was non reversionary (did not automatically continue to a new beneficiary) then from a superannuation and TBAR perspective, there was actually no pension in place at 30 June 2017. This means there is nothing to report on the TBAR at 30 June 2017, no pension account to “roll back” to $1.6m by 30 June 2017 and no payments to make from that pension during 2017/18.

In our view, if this pension was the sole income stream in the Fund, no CGT relief is available because none of the fund’s members needed to “do anything” to address the 2017 super reforms.

Of course, the Fund can continue to claim a tax exemption on its investment income until the death benefit is dealt with (providing this happens as soon as practicable). Interestingly this applies even though the “pension” balance may be much higher than $1.6m. Let’s say the deceased’s pension balance (the sole balance in the Fund) was $5m when they died in April 2017. If the trustee sells all the assets in 2017/18 to pay this out as a lump sum, the Fund will be able to do so entirely CGT free in any case.

If the balance was ultimately used to start a new pension in September 2017, the usual rules would apply just like any other new pension. There would be TBAR reporting (based on the value of the balance at the time the new pension started), new minimum pension calculations and the maximum amount that could be dealt with in this way would be $1.6m (potentially lower if the beneficiary already has their own retirement phase pensions that have not been commuted).

What if the pension was reversionary?

The situation is quite different if the pension was reversionary. Remember that reversionary pensions normally just continue in place to a new beneficiary – while the “owner” changes, the pension continues on.

Under this scenario there was a pension in place at 30 June 2017 and TBAR reporting will be required.

The 30 June 2017 balance will need to be reported for the new beneficiary. It won’t have any impact on his or her transfer balance cap until 12 months after death – giving us until April 2018 to ensure the new beneficiary has no more than $1.6m assessed against their transfer balance cap in the example above.

What if the pension was a TRIS?

The situation is much more complex if the pension was originally a TRIS. This is an area on which the ATO’s consultation process seems to have stalled (we are crossing our fingers that this means Treasury has finally shown some interest in a legislative solution). 

The 2017 superannuation changes altered many of the traditional superannuation strategies and none more so than the best way to deal with death benefits.

We have a free online tool that calculates your client's transfer balance cap. Simply register here for Heffron IQ to access it.