Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 264

How SMSFs should manage the Total Superannuation Balance

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.

RELATED ARTICLES

What is the new work test exemption?

Avoid these top five errors in your SMSF annual return

New bankruptcy rules may have a domino impact on SMSF pensions

banner

Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates

Retirement

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Property

Hey boomer, first home buyers and all the fuss

What is APRA worried about? Most mortgagees can easily absorb increases in interest rates without posing a systemic threat to the banking system. Housing lending is a relatively risk-free activity for banks.

Property

Residential Property Survey Q3 2021

Housing market sentiment has eased from record highs and confidence has ticked down as house price rises slow. Construction costs overtook lack of development sites as the biggest impediment for new housing.

Investment strategies

Personal finance is 80% personal and 20% finance

Understanding your own biases and behaviours is even more important than learning about markets. Overcome four major cognitive biases that may be sabotaging your investing and recognise them in others.

Where do stockmarket returns come from over time?

Cash flow statements differ from income statements and balance sheets, and every company must balance payments to investors versus investing into the business. Cash flows drive the value of the business.

Fixed interest

How to invest in the ‘reopening of Australia’ in bonds

As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.

Shares

10 trends reshaping the future of emerging markets

Demand for air travel, China’s growing middle-class population, Brazil’s digital payments take-up, Indian IPOs, and increased urbanisation are just some of the trends being seen in emerging economies.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.