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New ATO Updates Impact MLP Restructuring: What SMSF Trustees Need to Know

In the constantly evolving world of self-managed superannuation funds (SMSFs), staying informed is critical. Recently, the Australian Taxation Office (ATO) made critical changes to their website, setting new standards for taxpayers who have restructured a Market Linked Pension (MLP) and are anticipating a commutation authority to remove any excess transfer balance amount (QC 72887).


The updated ATO content is unambiguous: SMSF trustees cannot commute any capital supporting the restructured MLP until a commutation authority has been issued by the Commissioner.


As a result, members are required to wait a minimum of 60 days after receiving an excess transfer balance determination before they can take further action. This 60-day election period is non-negotiable and cannot be shortened by any means. 


From our practical experience, members should typically prepare for an additional waiting period of approximately 28 days for the ATO to issue a commutation authority. But be aware – in several cases that we've encountered, some members have waited up to 100 days post their excess transfer balance determination. 


The downside? Every single day spent waiting, the member accrues more excess transfer balance tax. SMSFs must grapple with the fact that waiting might not be the best financial move for their beneficiaries. And, this delay puts member choice on hold and increases the opportunity cost for those who want to commute the excess amount as a lump sum. 


More alarmingly, it could be even more expensive for members who restructured their MLP intending to remove the excess from superannuation but unfortunately pass away before the commutation authority is issued. These situations could reignite the debate around member benefit vs. death benefit, potentially leading to more erosion of the deceased member's benefits due to death benefit taxes. 
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