Managing the total super balance to enhance contributions for this EOFY
SMSFs can utilise the management of the total super balance (TSB) and take into account timings of super changes to streamline an efficient contributions strategy heading into the end of the financial year, according to a technical strategist.
In a recent Colonial FirstTech Strategy update, senior technical services manager Linda Bruce said a client’s TSB at 30 June prior to the relevant financial year can impact a number of super measures such as standard non-concessional (NCC) cap and the two-year or three-year bring-forward NCC cap.
Combined with the possible changes to the carry-forward concessional contributions along with the work test exemption, SMSFs also need to take into account of government co-contributions and spousal contribution tax offset that could be affected.
“In addition, SMSFs are impacted where the fund pays a retirement phase income stream any time during a financial year, and a person who was a member of the fund any time during the financial year had a TSB of more than $1.6 million at the previous 30 June and was receiving a retirement income stream from any fund at the previous 30 June, the SMSF is prohibited from using the segregated assets method to claim the exempt current pension income for the financial year,” Ms Bruce said.
“Where an SMSF has any members with a TSB of $1 million or more on 30 June the year before the first member starts their first retirement phase income stream, the SMSF must report events affecting members’ transfer balance accounts on a quarterly basis rather than a yearly basis.”
Ms Bruce said advisers can utilise strategies to reduce TSB before 30 June could potentially increase the amount of NCCs that can be made in the next financial year, as well as reduce the potential impact from the super measures.
“A spouse with a higher super balance may split their 2019–20 concessional contributions to their spouse’s super account,” she noted.
“Clients considering a ‘withdrawal and recontribution strategy’ with a TSB over the relevant threshold may be able to make a withdrawal from their super or pension account before 30 June 2021.
“The reduced TSB could also enable the withdrawal amount to be contributed back to their super as a NCC in the new financial year.”
Where a client’s TSB is expected to be slightly over the relevant threshold on 30 June 2021, Ms Burce said it may be possible to make additional withdrawals from their TTR or retirement income streams to bring their TSB below the threshold, to qualify for the relevant super measure in the next financial year.
It is important to note total super balance is the total amount of accumulation phase values, value of transfer balance account (adjusted for current values of account-based pensions and term allocated pensions), rollovers in transit and certain outstanding LRBA amounts (for SMSF members).
“If a client’s myGov account is linked to the ATO, they can identify their total super balance on 30 June 2020. Clients can navigate to ATO’s total superannuation balance information section to check their TSB recorded with the ATO,” Ms Bruce explained.
“However, if the client is a member of an SMSF and the SMSF has not yet lodged their 2019–20 financial year annual return, the ATO’s 30 June 2020 TSB record will be amended once the annual return is lodged. It is important to be mindful that the 30 June 2020 TSB amount showing in the client’s myGov account may not be accurate.”