As the commencement date for the super reforms passes, the focus will inevitably turn to the processes that will implement these reforms – particularly the processes at the ATO end.
Pam Roberts, Senior Technical Services Manager at IOOF, said “Quietly and steadily over the last few years, the ATO’s role in super has been changing from that of a regulator (of SMSFs) and the tax authority, to that of a participant in the industry.”
The ATO is the facilitator of key services that are changing the way clients engage with their super[i]:
Superstream – This is straight through processing of rollovers and contributions. 95% of rollovers and 85% of contributions are done via straight through processing. Over 85% of small employers and 96% of larger employers make contributions through Superstream. In conjunction with this, the ATO will be taking over the operation of the Small Business Clearing House which is used by over 280,000 small businesses
ATO validation and online services – Funds validate member information through ATO Supertick. Through the ATO online portals (myGov and etax), the ATO acts as a facilitator of consolidation of multiple super accounts and lost/unclaimed super moneys. Since 2013 1.38m accounts have been consolidated through the ATO portal. Clients can also use their online account with the ATO to choose their super fund
Single Touch Payroll – From 1 July 2018 employers with 20 or more employees and from 1 July 2019 smaller employers will be reporting to the ATO when salary and wages, PAYG withholding and super contributions are actually paid. Part of this includes plans to streamline the employee commencement process so that new employees can submit their TFN Declaration and make a super fund choice using their new employer’s payroll software or their ATO online portal though myGov.
Ms Roberts commented, “This impact on clients will be significant. From July 2018, it is expected that clients will be able to go online to their myGov ATO account and see: super account values; total super benefit values; contributions as made; section 290-170 Notices submitted; pension commencements and withdrawals. Clients are likely to be able to consolidate super, request rollovers, choose their super fund, and claim a tax deduction for personal super contributions – all using their ATO myGov account. Advisers will need to be part of this process.
“For financial advisers, it is increasingly important to understand and work within these processes. It may not be particularly exciting, but understanding what data the ATO holds about a client; how they collect it and how they will use it; will be critical to financial planning in the future.
“Financial planners with clients who have SMSFs will have the added issue of monitoring the reporting of pensions and withdrawals to the ATO on an events time basis. For advisers working with accountants and tax agents, this is a quantum shift in the way these professions work currently with SMSFs.”
A: Reporting to the ATO October to December 2017 – APRA super funds
Currently the ATO receives and processes a great deal of data from APRA super funds on an annual basis about an individual’s super contributions and account balances to manage the contributions caps.
Following the 2017 reforms to super and the introduction of the transfer balance cap for pensions, APRA super funds will be reporting additional data to the ATO on the value of existing and new pensions and any withdrawals (in cash or rollover) from pension accounts.
Between October and December 2017, super funds (other than SMSFs) will be providing the ATO with two reports:
1. Member Contributions Statement (MCS) – due 31 October 2017
Since 2007 super funds have had to provide an annual report to the ATO of the amount and type of contributions received for each member for contribution cap purposes. From 2013, this report also included the 30 June account balance.
With the 2017 super reforms, funds will need to report the ‘accumulation value’ on 30 June 2017 for Total Super Balance purposes. This is defined in tax law as the amount that the member would receive as a lump sum on 30 June 2017. In practice, this is equivalent to the withdrawal benefit that is reported on annual statements.
For industry funds or super master trusts the account balance is generally the same as the withdrawal benefit so these funds will continue to report the 30 June account balance in the MCS, as they have done since 2013.
However, for super accounts in wrap-style super platforms like the IOOF platforms, there is a difference between the account balance and the withdrawal benefit as the withdrawal benefit is net of tax on unrealised capital gains.
Consequently, super platforms, including the IOOF platforms, will be reporting the 30 June 2017 withdrawal benefit either in the October 2017 MCS or as a separate report in the Transfer Balance Account Report (TBAR). The IOOF TBAR is due to be submitted in December 2017.
2. Transfer Balance Account Report (TBAR) – monthly from November/December 2017
The TBAR is principally required so that the ATO can measure the transfer balance cap. The first TBAR (required November/December 2017) will provide:
The 30 June 2017 value of existing retirement-phase pensions (both capped defined benefit income streams and account based income streams);
The commencement value on any post 1 July 2017 new retirement-phase or reversionary pensions; The date of death if on or after 1 July 2016 for any reversionary pensions.
Any full or partial lump sum withdrawals or commutations from retirement-phase/reversionary pensions since 1 July 2017. These are debits against the member’s personal transfer balance account.
Personal injury contributions from 1 July 2017 into super or pension accounts. These are debits against the individual’s personal transfer balance account.
The 30 June 2017 accumulation value of super and pension accounts, if that is different to the account balance value reported on the MCS.
IOOF will report the value of retirement-phase account-based pensions on 30 June 2017 as the account balance on 1 July 2017 that was reported in the Centrelink schedule sent to members early in July 2017[ii]. For IOOF pensions, this is the value that most closely aligns with the requirements in tax law. Other APRA super funds may have a different but equally valid method of valuing pensions on 30 June 2017.
Following the first TBAR, super funds will report to the ATO on a monthly basis the commencement value of any new retirement-phase pensions; pensions that revert on death to a beneficiary during the month; plus any lump sum withdrawals/commutations from existing pensions and personal injury contributions received.
Client portal through myGov
Where practical the ATO will upload information received through the MCS and the TBAR onto the client’s ATO myGov account as soon as possible after the ATO receives the data. Currently, clients can see their account balances on 30 June (as reported on the MCS). Clients will also be able to view their Total Super Balance on 30 June 2017.
B: Real time reporting to the ATO from 2018 – MAAS and MATS
The ATO has decided to streamline reporting from APRA super funds into two reports:
1. Member Account Attribution Service (MAAS) – will commence 1 April 2018
Rather than report all member account details on an annual basis in the MCS, APRA super funds will only be required to report any changes to account details already held by the ATO. Changes to account details, including the opening and closing of super and pension accounts, must be reported on a real-time basis within five business days of the change occurring.
New account information will be a two-way street. APRA super funds will be able to request and verify member details held by the ATO, such as addresses (including email addresses), mobile phone numbers etc. plus the date the ATO received the information. This will assist in reuniting members with their super before they become ‘lost’.
2. Member Account Transaction Service (MATS) – from July 2018
The MATS replaces both the annual MCS and the monthly TBAR from July 2018. Rather than make an annual report via the MCS, from July 2018, APRA super funds will be required to report transactions on an ongoing real-time basis within 10 business days of the transaction occurring. APRA funds will also be required to provide much more detail than is currently provided on the MCS, including:
Employer contributions as received by the super fund
Funds will be required to report the amount and date received, and the type of employer contribution – Super Guarantee, Salary Sacrifice, Award, or Employer Voluntary; and the contributing employer details[iii]. Currently in the MCS a super fund just reports the annual amount of employer contributions. The ATO requires this extra detail to more closely monitor the employer’s Super Guarantee obligations and to implement the First Home Saver Scheme.
Personal contributions and s.290-170 Tax Deduction Notices as received by the super fund
Funds will be required to report personal contributions and section 290-170 Tax Deduction Notices as they are received. Details include: the amount of personal contributions and date received; the date a section 290-170 Notice is received and acknowledged; the personal contributions covered by the Notice; and the applicable tax year.
Other contributions types
Funds will need to report new Downsizer contributions as received[iv] – where clients over age 65 can contribute up to $300,000 of the proceeds of the sale of their primary residence from 1 July 2018. Other contribution types will be reported as received and with some labelling changes. A new contribution type will apply for that part of an overseas super/pension fund transfer where the client has elected for the Australian fund to pay tax on the growth.
Amount currently reported on the TBAR will be reported on the MATS.
What does this mean for clients and advisers?
Clients and advisers will need to be aware that the ATO will be receiving details about contributions made to their account as the contributions are actually made. Although errors can be re-reported and rectified, the ATO will be on notice about the original report. Particularly in respect of section 290-170 Notices, the ATO will be aware of when the Notice has been submitted and may reduce a personal contribution tax deduction as a consequence.
For example: A client makes $2000 of personal contributions per month. In February 2019, the client commences a retirement-phase pension using part of their super but fails to submit a section 290-170 Notice before commencing the pension. When their accountant tries to claim a tax deduction for $24,000 of personal contributions, the full tax deduction may not be allowed because the ATO is aware of when the contributions were made; when the pension commenced; and that no 290-170 Notice was received prior to commencement of the pension.
Proposals to update section 290-170 Tax Deduction Notices
The Government is currently investigating options for a more streamlined approach to claiming tax deductions for personal super contributions, now that most employees can claim a tax deduction for these contributions. It has been recognised that the current paper-based section 290-170 Notice regime may no longer be appropriate in the era of online data and electronic tax returns. One proposal that is being considered is that the ATO take a greater role as facilitator of section 290-170 Notices. Although no discussion paper has been released, it has been suggested that the taxpayer or their accountant could submit the section 290-170 notice to the ATO when doing their tax return, and the ATO would notify the super fund to tax the contribution. Although welcome, any changes would require amending tax legislation.
C. ATO Reporting for SMSFs – events-based reporting from 1 July 2018
Currently SMSFs report to the ATO on an annual basis via the Super Fund Annual Return (SAR). With the commencement of the Transfer Balance Cap, SMSFs will be required to provide a Transfer Balance Account Report (TBAR) to the ATO of credits and debits on an events basis. However, as a transitional measure, the deadline for the first TBAR will be extended to 1 July 2018. Below is a summary of the reporting obligations for SMSFs as currently proposed by the ATO:
30 June 2017 values for existing retirement phase pensions must be reported on the TBAR by 1 July 2018 or earlier from October 2017.
New retirement-phase pensions or death benefit/reversionary pensions that commence after 1 July 2017 must be reported on the TBAR by 1 July 2018 or 28 days after the end of the quarter the pension commences.
Therefore, pensions commencing between 1 April 2018 and 30 June 2018 must be reported by 28 July 2018.
Commutations or lump sum withdrawals from retirement-phase pensions after 1 July 2017 must be reported on the TBAR by the later of 1 July 2018 or 10 business days after the month the commutation was made. Therefore, commutations in June 2018 must be reported by 28 July 2018.
Personal injury contributions/structured settlement contributions made from 1 July 2017 must be reported on the TBAR by the later of 1 July 2018 or 10 business days after the month the commutation was made.
Limited Recourse Borrowing Arrangement (LRBA) payment events from 1 July 2017 must be reported by the later of 1 July 2018 or 28 days after the end of the quarter the payment was made.
Reporting of commutation authorities’ will be in line with the legislated time frames.
SMSFs can chose to submit their TBARs using: bulk data exchange (BDE); an online form; or a paper form. At this stage, the ATO is not suggesting that events based reporting will extend to contributions, and annual contributions will continue to be reported in the Super Fund Annual return.
By Pamela Roberts
7 December 2017