SuperConcepts welcomes the announcement of a permanent legislative solution to fix how a pre-1 July 2017 market linked pension is valued under the transfer balance cap when they are commuted or rolled over. However experts have warned that industry input is required to avoid repeating the same mistakes.
"According to the ATO’s interpretation of the current law, in such a situation, the value of the debit, being the reduction to the member’s transfer balance account, is zero. This was not the intention of the law and can result in a double count towards a member’s transfer balance cap," said Mark Ellem, SuperConcepts Executive Manager of SMSF Technical Services.
Assistant treasurer Stuart Robert announced the plan for a more permanent fix at the Financial Services Council breakfast address today.
"This nil debit is an issue because it doesn't accurately reflect the individual's transfer balance cap position, and may lead to an individual breaching their cap. The ATO has issued guidance to SMSFs on their approach to compliance on this issue, but the Government is committed to finding a more permanent legislative solution to ensure that the value of a commuted market-linked pension is correct," the Assistant Treasurer said.
The new fix must align the legislation with the original intent, according to Mr Ellem.
"It will be important that the fix to the legislation aligns with the original intent as this has been the approach taken by advisers and accountants when utilising the guidance issued by the ATO,” said Mr Ellem.
"What would be a concern is where new legislation changes how the value of the commutation is determined, from how it was explained in the Explanatory Memorandum.
"Any proposed legislative change should be done with consultation from industry to ensure the outcome is not different from the original intent, as outlined in the EM. We do not want legislation with an outcome not aligning with intent, for a second time,” said Mr Ellem.
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