In case you haven’t yet seen an excess transfer balance determination you might be interested in the details of one that I’ve been given from an SMSF client who has just transferred his administration to us as a result.

His previous accountant had not reduced his pension account to $1.6m as at 1/7/2017. Instead, his $2,876,913 pension continued in force. On 15/8/2018 the ATO determined that he must commute the $1,276,913 excess, plus excess transfer balance earnings of $132,291, a total of $1,409,204. The excess transfer balance earnings would have been higher if the returns had been lodged later.

The ultimate effect has been to permanently reduce his transfer balance cap by the transfer balance earnings amount. It’s no longer $1.6M, it’s now $1,467,709. In real terms this means that an earnings tax rate of 15% will now be applied to $132,291 that would otherwise have been permanently tax exempt. If we assume a 4% annual earnings rate, that’s an additional tax impost of $794 per annum for the life of the member. Not a great result.