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Calculating TSB under new laws should not be underestimated: expert

By Keeli Cambourne
June 03 2024
2 minute read
leigh mansell smsf
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Although the proposed Division 296 tax legislation is the headline issue in the new superannuation legislation, there is another equally important element of the bill, says a leading technical adviser.

Leigh Mansell, director SMSF technical and education for Heffron, said in the latest quarterly technical webinar, that there is another section of the bill that is relevant for everyone and deals with redefining total super balance.

“One of the things we've all been waiting for since the draft bill about Div 296 was released was for some regulations to be released about anybody who's got a defined benefit interest, and how are they going to be valued,” Mansell said.


“Draft regulations were released in March in relation to the methodology, and there is an important reason why we care about the valuation methodology of withdrawal value for defined benefit interests.”

She said the legislation is attempting to redefine total super balance and develop a simpler methodology of calculating it, which subsequently will affect most superannuation members in both SMSF and APRA funds.

“A lot of our clients have accumulation accounts and if they've got a pension, it's an account-based pension or a transition to retirement pension in which case nothing is really going to change for that group,” Mansell said.

“The withdrawal value would essentially be the termination value - what they get in their pocket if they voluntarily left the fund on 30 June - but when we're dealing with people who have defined benefit interests, the valuation methodology is going to be different.”

Mansell said the importance of TSB should not be underestimated as it is used for determining the value of a member’s non-concessional contribution cap the following year, or whether they can use any unused concessional contributions they've built up.

“Moving forward, this potential new definition of TSB includes a new concept of withdrawal value and for members who have a defined benefit interest, this will be calculated differently,” she said.

Currently, for a defined benefit pension, TSB is calculated using the original credit when a member commenced their pension which is then used each subsequent year for TSB purposes.

“Part and parcel of the Div 296 measure is to make sure everybody gets an even playing field so under the new legislation defined benefit members would also have their benefits recalculated or revalued every single year,” Mansell said.

“If you've got a defined benefit pension, the default position is it will be valued as the ‘family law value’ and methodology to work out this value sits in the family law superannuation regulations. Some funds like the Judges pension scheme, Commonwealth sector super scheme, various state government-defined benefit funds, and the military benefit super scheme, have had their own valuation methodologies approved and these sit in a legislative instrument that forms part of the family law superannuation regulations.”

She explained this means that for members in retirement phase, unless there's a particular methodology in the legislative instrument, calculating the value of their TSB will mean multiplying the pension payment at a particular point in time by a factor that is determined by things like the age of the member, whether they are male or female also makes a difference because of longevity factors.

“If the pension incorporates a reversion, there's an add-on to reflect that the pension would be payable for two lives,” Mansell said.

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