In a recent webinar, DBA Lawyers’ Daniel Butler said this concept presented a key opportunity for members whose account balance was nearing the $1.6 million cap, as the value could be significantly lower when these costs were factored in.
“The TSB for an accumulation interest, broadly speaking, is the net withdrawal value. That reflects the realisation costs including any tax that would be payable by the fund as a result of disposing of a property, so if you had to pay out that member today what could they be paid,” Mr Butler said.
“You don’t have to factor in things like CGT and the costs of disposing of an asset in the fund’s financial statements, because an SMSF under reg 8.02B of the SIS regulations must reflect the market value in its financial statements, but you can if you want to adjust a member’s TSB.
“So, when you look at the financial statements which is often reflected in an SMSF’s annual return, the members’ TSBs may be overstated as their accumulation and their pension interests (for their prescribed pensions which are primarily account-based pensions and TRISs), there are realisation costs that may not have been factored in.”
Mr Butler used the example of Eliza, who commenced an account-based pension of $1 million in July 2017 of which $200,000 was commuted. The pension was now worth $1.2 million at 30 June 2019.
“So, from a transfer balance perspective, she’s got $800,000, but the market value is $1.2 million, so how much is reflected in her TSB as of 30 June? We first need to strip out the usual credits and debits and we then need to increase it by the net withdrawal value,” he explained.
“On the face of it, it’s $1.2 million, but what are the realisation costs? What if we have real estate agent commission on sale, what if there’s a property that needs to be done up before sale?
“So, it’s really quite a judgement call as to what the net withdrawal value is, and it’s a bit of work for you to work this out in more complex situations.”
