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Understanding TSB, TBC critical

Advisers and their SMSF clients need to be mindful of the differences between an individual’s total super balance (TSB) and their general transfer balance cap (TBC) before formulating relevant strategies such as those centred on contributions, according to a specialist lawyer.

“If we look at a non-concessional contribution where the member has a total super balance of greater than $1.6 million, in that event you cannot put more money into super,” DBA Lawyers director Daniel Butler said during a strategy seminar hosted by his firm last Friday.

“Interestingly, this total super balance concept is linked to the pension exemption, which is called the general transfer balance cap.

“But it’s very important to realise these two concepts are very different.”

Butler explained the TSB is the total asset balance a person has in super prior to 30 June.

If this amount equals or exceeds $1.6 million, then an individual cannot make any further non-concessional contributions for that financial year, he noted.

He pointed out the TSB reflected earnings growth, meaning a balance exceeding $1.6 million in one year could drop below the threshold in the following year if relevant factors such as diminishing market returns had a significant impact.

“But it’s different to the pension exemption. The pension exemption, or TBC, that is a static amount. It is indexed but it’s a static amount,” he said.

“It doesn’t reflect growth in your account balance as such.

“So to understand strategies and apply strategies, we need to understand these basic rules.

“To put more money into super your balance has to be below $1.6 million, but for your pension exemption, you can start a pension up to $1.6 million and if it grows to $4 million after that point in time it is irrelevant.”

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