For someone who has many years of experience in the superannuation field, the Transfer Balance Cap has a degree of déjà vu. It feels like a watered-down version of RBLs. Common to the two eras is the need to place a value on income streams. I understand that for Section 1.06(6) flexi pensions this will be the commutation value.
I have not seen the issues below spelt out in material from the ATO or in the legislation. I raise them here to assist with any debate you may have with the Regulator. However, I would be grateful if you could share any Private Binding Rulings or other material that shows insight into the treatment of these income streams for TBC purposes.
For the Schedule 1B factors, if one had a 3% guaranteed indexation then you would use the “at least 3% but less than 4% table”. If the indexation was CPI then one would use the “at least 7% but less than 8% table”. AWOTE indexation would be the 8% table. CPI plus 1% would be a request to the Commissioner for a factor to be supplied. Yes, I know – these factors were constructed during a time of high inflation and were inappropriate even during RBL times.
What seems to not currently be covered is that flexi pensions can be for a term. Before the legislation got re-written to the ITAA 1995, subsection 140ZO(2) of the Income Tax Assessment Act 1936 applied where the Commission must determine in writing a method for calculating the capital value of a superannuation pension that is not payable for life. The following table is the one that was used back then.
Pension Indexation Rate
The pension may also have a Residual Capital Value (RCV) not exceeding 100% of the purchase price. This had a value of RCV / 1.10 ^ N. Logically, N for a lifetime 1.06(6) would be life expectancy.
I will be suggesting to affected clients that they get a Private Binding Ruling because I don’t know if the above will be applied by the ATO. I suspect it will. The factors need revision by the Regulator because they are not fair and reasonable – but then again, the tax treatment of a whole range of issues from CGT relief on unit trusts to the tax basis for transferred USA pension monies are even less fair and reasonable!
NetActuary can project which pension should be kept eg which of say the Flexi Pensions or ABP will give a greater ECPI over the years.