Most people would know that the new superannuation system that commenced on July 1, 2017 has produced two reasonable benefit limits. What is less understood is that each of the limits have different methods for calculating their value each year.
The best understood of these calculation methods is the Transfer Balance Account that keeps track of the value of an individual’s total retirement phase pension accounts. Anyone that either had a pension account at June 30, 2017, or commences a new superannuation retirement phase pension on or after July 1, 2017, will end up with a TBA.
What is less well understood is that the TBA has a little brother that every superannuation fund member will have, that is their Total Superannuation Balance. The value of each individual’s TSB will not only have a limiting effect on non-concessional superannuation contributions, it will also affect a person’s eligibility for:
- using the new unused concessional contributions carry forward rule,
- accessing the Commonwealth government co-contribution, and
- the tax offset for spouse contributions.
This means each superannuation fund member’s TSB will have a greater effect on their superannuation affairs than the $1.6 million transfer balance cap.
A person’s TSB is calculated on June 30 each year, with all superannuation members having a TSB from July 1, 2017, based on the value of their total superannuation balances at June 30, 2017. How the TSB is calculated each year is a lot more complicated than the calculation of a person’s TBA.
A person’s TSB is arrived at by adding together their accumulation phase accounts, their retirement phase accounts, and then any amounts rolled over from one superannuation fund to another that is effectively in transit at June 30, each year. From the total of these three amounts is subtracted any personal injury or structured settlement contributions that a person has received.
The reason why amounts rolled over from one super fund to another are included is to avoid someone getting an unfair advantage by rolling over an amount from one super fund on June 30, and the receiving super fund not accounting for the rollover until July of the following financial year.
Personal injury and structured settlement contributions are deducted because they are both included in a person’s accumulation phase and retirement phase account balances, but are specifically excluded from counting towards the pension transfer balance cap and the other new limits and restrictions.
Because of the time delay between the end of each financial year and a SMSF member’s account balance being finalised, advisers must make their clients aware of the other limits and restrictions well in advance of reaching them. These include the:
- $500,000 limit that restricts the ability to use the new unused concessional contributions carry forward rule,
- the $1.4 million and the $1.5 million limits on using the non-concessional contribution bring forward rule, and
- the $1.6 million limit that affects a person’s eligibility for the Commonwealth government co-contribution in the tax offset for spouse contribution.
Although the ATO will be calculating and maintaining each superannuation members TSB, the responsibility for exceeding the relevant contribution limits falls squarely on the shoulders of superannuation members, and in practice will also fall on their advisers.
With the far-reaching effect that a person’s TSB will have on their superannuation affairs it will be more important than ever for advisers encourage their clients to establish all of their superannuation interests and consolidate them. Failing to do so will make the job of keeping track of what a client’s TSB is that much harder.