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Balance thresholds problematic for SMSFs

An SMSF technical expert has highlighted a significant problem with the new superannuation measures’ approach of using balance thresholds for non-concessional contributions (NCC).

On 15 September, the federal government changed the proposed super legislation, replacing the $500,000 lifetime NCC cap with a yearly limit of $100,000 with a three-year bring-forward rule, up to a super balance of $1.6 million.

The new $100,000 cap will apply from 1 July 2017 and the $1.6 million threshold will be determined by measuring the super balance as at 30 June of the previous financial year.

However, SuperConcepts technical services and education general manager Peter Burgess said many SMSFs did not know their balance at 30 June, which was highly problematic for advisers and trustees calculating their NCC amount without causing excess contributions.

“Whenever we have balance thresholds for anything in the SMSF sector, it’s difficult because a lot of SMSFs don’t know their balance at 30 June and it’s not until maybe sometime into the future, in the new financial year, that they know it,” Burgess told the SuperConcepts SMSFs in Practice day in Sydney last Friday.

“We have raised this issue, that it’s not ideal to use the balance at 30 June, because we face the prospect of clients entering a financial year not knowing exactly what they’ve contributed because their accounts have not been finalised, and there are many reasons why accounts are not finalised until well into the new financial year – they’re still running tax statements and valuations.

“So the problem is that we’re potentially going to have an excess because it turns out that later your clients had more than $1.4 million at 30 June.

“There are all sorts of issues with balance thresholds, but unfortunately this is the new world that we’re going to have to work in.”

He said that particular area of balance thresholds for NCCs therefore required new thinking and new concepts.

But given it was the new way the rules were proposed to work, there were still strategic opportunities available to advisers, he said.

“If you’re going to trigger your clients’ bring-forward, you’re better off doing it before their balance ticks over to the next threshold,” he noted.

“Because if you do it just prior to going over the balance threshold, you’ll maximise the amount that you can get into super for these clients.”

He added advisers needed to check their clients’ balance every year, regardless of whether they’ve triggered their NCC bring-forward amounts, to ensure they were still under the $1.6 million limit for future contributions.

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