A commutation is the process of converting, fully or partially, a pension or annuity into a lump sum payment which can be:
- paid out of the super system, or
- transferred to an accumulation phase account.
This payment can be paid to the beneficiary or to another super fund.
If the member is rolling over a pension, you will need to lodge a Transfer balance account report (TBAR). The TBAR reports the commutation of each pension just before it is rolled over.
It is better for your member if you notify the ATO of the commutation before the receiving fund notifies the ATO of the new pension.
If the receiving fund reports the new pension to the ATO before you report the commutation, this could result in your member exceeding their transfer balance cap. This is because the transfer balance debit will not yet be recorded on the member’s account until the commutation is reported. In this situation, the ATO may issue an excess transfer balance (ETB) determination. If the ATO issues the member an ETB determination, you need to lodge the TBAR reporting the commutation to the ATO as soon as possible.
Visit the ATO website for more information about SMSF rollovers and when and how to report transfer balance account retirement events.
