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Re: Notional income on Transfer Balance Cap excess under $100,000

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According to the ATO website:

"If, on 1 July 2017, you are over your $1.6 million cap by $100,000 or less and you remove this excess by 31 December 2017, then you will not have to pay excess transfer balance tax or account for notional earnings on the excess."

To me this says that, for example, if you have an excess of $40,000 then you only have to transfer $40,000 to an Accumulation Account before 31 Dec 2017 and there will be no penalty AND THERE WILL BE NO REQUIREMENT TO CALCULATE AND TRANSFER NOTIONAL INCOME EARNED SINCE 1 JULY 2017.

Is this correct? It appears clearly to be the case, but after hours of research, this is the only reference I can find regarding notional income for this example. There are many references for amounts over $100,000

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Devotee

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Hi again Paul

 

I agree that the information on the relevant ato.gov.au page clearly indicates that the notional earnings amount doesn't apply to an individual who had a retirement phase account as at 1 July 2017 where the excess transfer balance amount was less than $100,000 and the excess was removed within 6 months of 1 July 2017.

 

ie only the excess capital amount needs to be removed (commuted) from the pension phase account. You don't need to calculate and remove a notional earnings amount on the excess capital amount in this case.

 

Here's a link to the relevant bit of law for this.

 

So, under this bit of law - for (a) the transfer balance credit will be the reported value of the pension phase account as at 1 July 2017.

 

(b) then says that the credit must be above $1.6m and less than $1.7m (for the transitional provision to apply).

 

And (c) then says that if a transfer balance debit is reported and the debit cancels out the amount of the excess, no excess transfer balance will have occurred.

 

So - make sure you commute the excess amount to ensure that a transfer balance debit exists. Then you'll need to lodge a transfer balance account report for both the original credit as at 1 July 2017 and for the debit when the commutation occurs. This ato.gov.au page has information on this reporting.

 

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

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ATO Certified

Devotee

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Hi again Paul

 

I agree that the information on the relevant ato.gov.au page clearly indicates that the notional earnings amount doesn't apply to an individual who had a retirement phase account as at 1 July 2017 where the excess transfer balance amount was less than $100,000 and the excess was removed within 6 months of 1 July 2017.

 

ie only the excess capital amount needs to be removed (commuted) from the pension phase account. You don't need to calculate and remove a notional earnings amount on the excess capital amount in this case.

 

Here's a link to the relevant bit of law for this.

 

So, under this bit of law - for (a) the transfer balance credit will be the reported value of the pension phase account as at 1 July 2017.

 

(b) then says that the credit must be above $1.6m and less than $1.7m (for the transitional provision to apply).

 

And (c) then says that if a transfer balance debit is reported and the debit cancels out the amount of the excess, no excess transfer balance will have occurred.

 

So - make sure you commute the excess amount to ensure that a transfer balance debit exists. Then you'll need to lodge a transfer balance account report for both the original credit as at 1 July 2017 and for the debit when the commutation occurs. This ato.gov.au page has information on this reporting.

 

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

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Thankyou SebReiter,

Your reply is most helpful - succinct yet sufficiently comprehensive.

I assume most people want to do the right thing by the ATO - but it ain't easy! 

Volunteering is one of the great things about Australia - you are to be applauded.

Thanks again,

Paul