April 2018    Information Guide No 1.

Individuals as part of Tax effective retirement planning will need to monitor their Total Superannuation Balance (TSB) as obligations and rights are affected.

The total superannuation balance (TSB) came into effect on 1 July 2017. Many superannuation obligations and rights depend on a member’s TSB which is generally accepted as the total amount a person has in all Australian superannuation funds whether in the pension phase and accumulation phase. This news update is intended as a general information guide only and individuals should make their own enquiries. The ATO website also has further details.

Eligibility for the five-year carry forward of unused concessional contributions cap where TSB less than $500,000.

It is suggested that if an individual’s total superannuation balance just before the start of the relevant financial year is less than $500,000, they may be able to access concessional contributions not previously fully utilised and increase concessional contributions for one or more of the previous five financial years. Refer s 291-20 of the Income Tax Assessment Act 1997  (ITAA 1997).

The $500,000 figure is not subject to indexation and is the cap amount.

Self-managed superannuation fund (SMSF) event-based reporting TSB concession less than $1,000,000 TSB.

SMSFs are not be required to report under the Australian Taxation Office’s (‘ATO’s’) transfer balance account report (‘TBAR’) regime on a compulsory basis until 1 July 2018 as advised by the ATO. SMSFs may wish to commence voluntary reporting earlier. The ATO administrative concession, the TBAR reporting frequency that applies to SMSFs paying existing before 1st July 2017 retirement phase pensions depends on the TSB of the fund members. The guideline is as follows-

  • SMSFs that only have members with a TSB of less than $1,000,000 report events at the same time that the SMSF lodges its annual return; or
  • SMSFs that have a member or members with a TSB of $1,000,000 or more will be required to report events impacting their members’ TBA within 28 days after the end of the quarter in which the event occurs.

The frequency also applies after 1 July 2017 where retirement phase pensions start after that date. A SMSF’s reporting frequency does not change once it has been locked into a particular reporting cycle unless the TSB exceeds the $1,000,000.

Bringing  forward of an individual’s non-concessional contributions (NCCs) cap $1,400,00 and $1,500,000.

Individuals under the age of 65 who are considering triggering a bring forward of their NCCs should check that they satisfy the additional TSB eligibility criteria in s 292-85(3) of the IT AA 1997.

These criteria are broadly summarised as follows:

  • The individual’s NCCs for the first year must exceed the general NCCs cap for that year. For example, the individual’s NCCs for FY2018 must exceed $100,000;
  • Immediately before the start of the first year, the individual’s total superannuation balance (TSB) does not equal nor exceed the general transfer balance cap (TBC) for the first year. For FY2018, the general TBC is $1,600,000, and this amount will be subject to indexation in later FYs;
  • The individual is under 65 years at any time in the first year;
  • The individual’s NCCs cap for the first year does not constitute a second year or third year of a ‘bring forward’ of the individual’s NCCs cap that was previously triggered; and
  • The difference (also known as the first year cap space) between the general TBC for the first year and the individual’s TSB immediately before the start of the first year exceeds the general NCCs cap for the first year. For example, assuming FY2018 is the first year, the difference between $1,600,000 and the individual’s TSB immediately before the start of FY2018 must exceed $100,000 in order for the individual to be eligible to trigger a ‘bring forward’ of their NCCs.

Once these criteria are satisfied, an individual’s TSB immediately before the start of the first year determines whether they will be able to ‘bring forward’ between two or three years’ worth of the annual NCCs cap. In order to ‘bring forward’ the maximum amount of three years’ worth of the annual NCCs cap, the difference between the general transfer balance cap (‘TBC’) and the individual’s TSB at the test time must exceed an amount equal to twice the annual NCCs cap.

Thus if an individual wishes to trigger a ‘bring forward’ period of three years starting from FY18, the difference between the general TBC of $1,600,000 and  the individual’s TSB must be below $1,400,000. If the individual’s TSB at the test time exceeds $1,400,000 but remains below $1,500,000, the individual will only be able to trigger a ‘bring forward’ period of two years $200,000.

The carry forward cap $100,000 is not currently subject to indexation

Disregarded small fund assets less than $1,600,000.

Effective as from 1 July 2017, SMSFs and small APRA funds will be precluded from using the segregated method to claim except income in certain circumstances. Section 295-387 of the ITAA 1997 sets out the criteria for this limitation applying and it is known as the disregarded small fund assets rule. The segregated method allows certain assets to be nominated as retirement assets when calculating exempt current pension income. One of the criteria for the rule is that a small fund member has a TSB that exceeds $1,600,000 just before the start of the income year where the fund has at least one retirement phase member. Under the rule, the fund would be required to apply the unsegregated method for calculating its exempt current pension income in the following income year.

The $1,600,000 threshold is not subject to indexation in these circumstances.

Making an NCC if the $1,600,000 threshold is exceeded.

If an individual’s TSB immediately before the start of FY2018 equals or exceeds $1,600,000, then they cannot make any NCCs for FY18 without triggering the excess NCC regime and exceeding the $1,600,000 threshhold.

The $1,600,000 threshold is subject to indexation due to the general rules indexation rules that apply to the TBC currently $1,600,000.

Offset spouse contribution

Section 290-230 of the ITAA 1997 sets out the criteria for when an individual is entitled to a tax offset for making an NCC to a spouse’s nominated superannuation fund if, immediately before the start of the FY of the contribution, their spouse’s TSB equals or exceeds the general TSB $1,600,000, then the individual is not entitled to a tax offset for a contribution made to a superannuation fund for their spouse in FY18.

The $1,600,000 threshold is subject to indexation due to the general indexation rules that apply to the general TBC.

Government co-contribution in respect of low income earners

The eligibility for the government co-contribution is set out in S6 of the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003 sets out the criteria .One of the criterion is that immediately before the start of that FY, the individual’s TSB is less than the general TBC for that FY currently at $1,600,000.

The $1,600,000 threshold is subject to indexation due to the general indexation rules that apply to the general TBC.

In Summary-

At times a complex area of law, and where in doubt, expert advice should be obtained.

Please contact us should you require further explanation or assistance.

For a more detailed explanation you can also refer to the ATO website.

Gregory Asher Sernack

FSL License Number 484657

Level 2 Unit 10 33 Kinsellas Drive

LANE COVE NSW 2066

 

Gregory Asher Sernack. M Comm MIPA AFPA AFSL.

Gregory Sernack Financial Services is a personalized financial services practice run solely by the principal, Gregory Asher Sernack, a CERTIFIED PUBLIC ACCOUNTANT and member of the Australian Institute of Public Accountants, holder of  a Master of Commerce degree and an Australian Financial Services License No 484657.Gregory Sernack is a member of the Financial Planning Institute and the Financial Ombudsmen Services.The holding of this financial services license required meeting stringent statutory requirements regulated by the Australian Investment and Securities Commission. We are somewhat unique in that we provide therefore not only accounting but also financial services.

 

DISCLAIMER

Gregory Sernack is licensed to provide advice under a Limited Australian Financial Services License (AFSL) as a recognised public accountant to give general advice for Financial Planning and Superannuation. Information provided is of a general nature and is based on factual information and is not intended to imply a recommendation or opinion about a financial product or course of action..

Please be advised that (a) that the advice has been prepared without taking into account clients objectives, financial situation or needs; (b) the client should, therefore, consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before acting on the advice; and (c) the advice does not relate to the acquisition, or possible acquisition, of a particular financial product. If the client is considering a particular product, the client should obtain a Product Disclosure Statement (PDS) (if required) relating to the product and consider the PDS before making any decision about whether to acquire the product: s949A (2).