Revised TSB calculation can help maximise NCCs
Factoring in disposal costs and capital gains tax when calculating the total super balance can allow clients to maximise their non-concessional contributions.
Speaking at the SMSF Day in Sydney this week, Smarter SMSF chief executive Aaron Dunn said when SMSF professionals are assessing a client’s ability to make non-concessional contributions (NCCs), it's important to remember that the account balance of a member has distinct differences to the definition of the total super balance (TSB).
Within the SMSF annual return, Mr Dunn noted that there are labels for the accumulation balance and the balances of pensions and a closing account balance.
“However, we then have two tables down the bottom, the accumulation phase value and the retirement phase value, which allow you to put in a different number if you believe the value of those accounts for the definition of total super balance will be different,” he said.
Mr Dunn explained that these values can be different from the account balance because they are based on a termination value which contemplates the value of a member’s interest if they were to voluntarily cease their interest in the fund.
The TSB value therefore allows for the adjustment of capital gains tax, windup costs, and disposal costs such as sales costs, brokerage, and other commissions, he explained.
This means that SMSF practitioners may want to consider the tax effect of unrealised gains when calculating the TSB, he said.
“If we have clients that have substantial unrealised gains but we haven’t considered them for the purposes of the accumulation phase value of an individual in the fund, that could be the difference between one or two years worth of NCCs,” he explained.
Mr Dunn noted that it's important to have evidence to support the values in the accumulation phase value and retirement phase value labels.
The retirement phase value is likely to be less to be different given the tax exemption that applies, he said.
“But if you have accumulation phase members, you can absolutely give consideration to these things for the purposes of that label,” he said.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
