Tuesday 02 May 2017 by Tony Negline Education (advanced)

Total Super Balance – Part four

One of the new Turnbull-Morrison superannuation concepts is the Total Super Balance. In this note, Tony discusses what is included, how it is calculated, and also how it is used

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What is the Total Super Balance (TSB)?

Basically it is the dollar value of your super assets but there are a few twists and turns in how it is worked out.

There are three key components of your TSB:

  1. The market value of the following:
    • Your accumulation interests – that is, the money you have in super that isn’t being used to pay a pension
    • Allocated pensions or annuities
    • Account based pensions or annuities
    • Some other market linked pensions or annuities
    • Any super benefits that you are transferring near 30 June each year that are not included in any of the items in this list 
  2. For all other pensions and annuities the value used here is the amount used to assess these income streams against your Transfer Balance Cap (I wrote about this topic on 10 April 2017). Please see the link at the end of this note.
  3. We then subtract away any structured settlement contributions that you might have made to superannuation – these are compensation payments made because of a Court or legal settlements physical or mental illnesses – such as major car accidents – or professional malpractice; these payments do not include Total and Permanent Disability insurance claims which your super fund may have claimed for you

What is the market value of assets?

This is a very important question.

In some cases it is easy to determine the market value of assets.  A good example here is listed shares or some fixed interest securities.

For other investments that operate in markets that have less liquidity this can be more difficult.  Large super funds and life insurance companies regulated by the Australian Prudential Regulation Authority, have to use national accounting standards to value their assets.

SMSFs have a bit more freedom as far as the valuation of assets is concerned, but the ATO does say the asset values used have to be supportable and preferably done by an independently verifiable expert.  For example, many real estate values in various locations have been increasing strongly over recent times and in some cases quite rapidly; however in other locations the value of property has suffered a severe and sustained decline particularly since commodity prices have fallen.

In situations when the value of an asset is fluctuating wildly and unpredictably it would not be wise to use a valuation that is more than a few months old unless you can independently justify your decision for doing this. 

If you wouldn’t rely on a valuation to justify the value of an asset when buying or selling it then why would the ATO accept it?

A practical difficulty will be assets that cannot be easily valued or take a considerable period of time for a value to be determined.

When is the TSB calculated?

For most events this is calculated 30 June each year.  The first time it will be worked out will be the end of the 2017 financial year and will then apply for the following financial year.

What is the TSB used for?

It is used to determine eligibility for the following five items:

  1. Making non concessional contributions – that is, personal after tax contributions to super.
  2. Receiving the government co-contribution.
  3. Eligibility for the spouse contribution tax offset.
  4. Ability of SMSFs or small APRA funds to use segregated asset accounting (please refer to this article to understand what this term means).
  5. Make catch up concessional contributions.

For the first four items, your TSB on 30 June in the previous financial year must be less than $1.6m and this rule applies from 1 July 2017.  For the first item (making after-tax contributions to super) there may be restrictions on the maximum contribution you can make if your TSB is greater than $1.4m.  We will look at how these rules work in my next article.

The fifth and last item commences after June 2018 and to be eligible for this new rule you will need a Total Super Balance of less than $500,000.  There are a number of other qualification rules that apply to this measure, however we will not look at these additional rules in any further detail.

The $1.6m threshold will be indexed once accumulated consumer inflation is at least $100,000.  There is currently no mechanism to index the $500,000 threshold.

Where will you find out your TSB?

This is an important question because the penalties are quite severe if you get something wrong.

For example, penalty tax will apply for contributions above your non concessional contribution cap if those excess contributions are not withdrawn from the super system.

You will be able to access your Total Super Balance from your MyGov account if you are registered to use this service.  Alternatively your tax agent will be able to find out your TSB from the web portal the ATO runs for tax agents.  But the data held by the ATO is only as good as the data it has received.  Obviously some super funds will be quicker at sending data to the ATO than others and some funds will send incorrect information through.  I think your best course of action is to determine this number yourself, especially where you think the ATO has incomplete or incorrect information.

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