In a recent article, Heffron senior SMSF technical specialist Annie Dawson said an important part of end-of-financial-year planning for clients is reviewing their total superannuation balance (TSB).
A member’s TSB at 30 June 2022 can impact their ability to access a range of contribution measures, including catch-up concessional contributions, the non-concessional contribution cap of $110,000 and the bring-forward rules, Ms Dawson noted.
“If you have a client who would really like to be below a particular TSB threshold, there are steps that can be taken to lower their balance ahead of 30 June 2022,” said Ms Dawson.
One of these strategies, she explained, is splitting eligible concessional contributions to a spouse.
“Don’t forget that contribution splitting is always a year behind – in other words, clients can split 2020/21 contributions up until 30 June 2022 but normally they can’t split 2021/22 contributions until next year,” she noted.
“The maximum splittable amount is the lesser of 85 per cent of concessional contributions or the member’s concessional contribution cap for that year (including any additional amounts available because of the carry forward rules).”
Ms Dawson reminded SMSF professionals that the receiving spouse must not yet be retired or reached age 65.
“Watch the timing as well – since it’s only concessional contributions that can be split in this way, it’s important that if personal contributions are to be split, the paperwork needed to claim a tax deduction is done first. It’s also important that the split happens before 30 June 2022,” she said.
If a member is eligible to withdraw benefits, Ms Dawson said it might even be worth taking money out of super before 30 June 2022 just to scrape in under a key threshold.
“Take for example, retired couple Ben (age 73) and Jerry (age 71). Ben and Jerry each have account based pensions (predominantly taxable), with balances of $1.8 million and $1.2 million respectively. If Ben takes a partial commutation of $660,000 prior to 30 June 2022, both Ben and Jerry will have TSBs of less than $1.48 million at 30 June 2022,” she explained.
“This means that in July 2022, both Ben and Jerry will be eligible to make a non-concessional contribution of $330,000 and commence new account based pensions with these monies (subject to their transfer balance caps).”
Withdrawing the monies ahead of 30 June 2022 was critical for Ben’s contribution, she noted.
“Without that quick action, only Jerry would have been able to make non-concessional contributions within his cap in 2022/23,” she said.
“Taking action before 30 June 2022 meant that they could even up their member balances and increase their tax free components.”
In cases where a client will exceed their TSB threshold by a small amount, Ms Dawson said it might be worth reviewing their closure costs.
“The ATO has previously recognised that a member’s TSB will not necessarily be the same as the amount shown in an SMSF’s annual financial statements. Rather, there are a number of costs that could reasonably be taken into account for the specific purpose of determining an appropriate TSB value,” she explained.
“For example, the costs of disposing of fund assets and the tax on any unrealised capital gains. If it appears likely a client will exceed a relevant TSB threshold by a small amount, it may be worth reviewing their TSB calculation and reporting a revised amount in the SMSF annual return at the special labels X1 and X2.”
Whilst this adjustment can occur “off balance sheet”, it’s important to ensure suitable evidence is retained to support the calculation, she stressed.
She also reminded SMSFs professionals not to overlook the fact that a member’s TSB can be more than just their member entitlements or a different amount altogether.
“For example, special rules apply if a member has lifetime or life expectancy pensions,” she noted.
“Similarly, there is a special TSB calculation for some members of funds that have entered into new limited recourse borrowing arrangements since 1 July 2018.”
She also warned SMSF professionals to be careful of using strategies that involve deferring the allocation of contributions made in June until July.
“In our view, a member’s TSB will include unallocated contributions at 30 June 2022. That’s because any member’s TSB is essentially whatever amount the trustee would have paid to them had they left the fund on 30 June 2022,” she said.
“If that happened in practice, the trustee would naturally be obliged to immediately allocate the contributions before the member left.”
