All superannuation funds are preparing their financial statements for 30 June 2018, and it’s important to keep in mind a member’s Total Superannuation Balance (TSB) across all of their superannuation funds. It dictates whether:
- the member can make certain contributions
- how often their SMSF needs to report to the ATO on transfer balance account events, and
- whether the member might benefit from new and proposed superannuation changes.
Areas affected by the Total Superannuation Balance
A member’s TSB is the sum of all their accumulation accounts and retirement accounts across all of their superannuation funds minus any personal injury (structured settlement) contributions that have been paid into any of the member’s superannuation funds.
Some SMSF members are calculating their TSBs incorrectly by only counting their superannuation savings in their SMSF and not including balances in other superannuation funds.
Here, I outline areas of superannuation that are currently affected by a TSB and those areas that will be affected if the proposed superannuation changes become law.
Non-concessional contributions: For an SMSF member to be eligible to make non-concessional contributions into their SMSF, the TSB must be below $1.6 million immediately before the start of the financial year in which the contribution is made.
Catch-up concessional contributions: From 1 July 2018, if a member has any unused concessional contributions in one year, then provided their TSB is below $500,000 immediately before the start of the financial year in which the contribution is made, they can use any of the unused limit in the following five consecutive years.
Spouse contributions: For a member to be able to make contributions for their spouse and claim a tax offset on the contribution, the spouse’s TSB must be below $1.6 million immediately before the start of the financial year in which the contribution is made.
Government superannuation co-contributions: The government will contribute 50 cents for every $1 of non-concessional contributions of up to $1,000 made by a member into their SMSF (or any super fund). However, the member’s TSB must be below $1.6 million immediately before the start of the financial year in which the non-concessional contribution is made.
Transfer balance account reporting: If any member of an SMSF has a TSB of $1 million or more, and the SMSF has a transfer balance event, then the SMSF must report the transfer balance account within 28 days after the end of the quarter in which the event occurs. Where all SMSF members have a TSB less than $1 million, then their SMSF can report the transfer balance event on an annual basis at the same time as when its tax return is due.
Tax exemption on pension income: If an SMSF has a member with a combined TSB in excess of $1.6 million across all of their superannuation funds (as at 30 June of the previous financial year), and the person is in receipt of a retirement pension, and the SMSF has at least one member in retirement phase, then the SMSF can only calculate the tax exemption on earnings generated from pension assets using the unsegregated or proportionate method. However, if an SMSF has a member in receipt of a retirement pension and all of members’ TSB is less than $1.6 million across all of their superannuation funds (at 30 June of the previous financial year), then the SMSF can calculate the tax exemption using the relevant segregated and/or unsegregated method.
Areas affected by the 2018 Budget
Work test exemption for recent retirees: In the 2018 Federal Budget, the government proposed that from 1 July 2019, an individual aged 65 to 74 with a TSB of less than $300,000 (at the beginning of the financial year following the year that they last met the work test) will be permitted to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
Opt-in requirements for life insurance: In the 2018 Federal Budget, the government proposed that from 1 July 2019, life insurance cover will move from a default framework to an opt-in basis for members with balance of less than $6,000, members under the age of 25 years, or members whose accounts have not received a contribution in 13 months and are inactive.
Capping passive fees: In the 2018 Federal Budget, the government proposed that from 1 July 2019, a 3% annual cap will be placed on passive fees (i.e. administration and investment fees) charged by superannuation funds on accounts with balances below $6,000.
It is important that SMSF members are aware of how their TSB affects their superannuation entitlements so that they can maintain their funds’ compliance and even take advantage of the changes to superannuation law.
Monica Rule is an SMSF Specialist and author. See www.monicarule.com.au. This article is general information and does not consider the circumstances of any individual.