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Care over market values underscored

SMSF accountants and advisers have been warned to exercise additional care when determining total super balances as two different market values could result in contributions consequences for clients.

SuperConcepts technical services and education general manager Peter Burgess highlighted that a topical technical issue for practitioners was around using net market value and market value.

“For the purpose of calculating your clients’ total super balance for the 2016/17 year, so in other words the balance at 30 June prior, the ATO will work from information provided on the SMSF annual return and there is a field there called the closing account balance,” Burgess told the Chartered Accountants Australia and New Zealand National SMSF Conference in Sydney today.

“This is what the ATO will use to determine your clients’ total super balance, and that balance is worked out on a market value basis.

“But the law says that in order to calculate your clients’ total super balance, what matters is the value that they would get if they voluntarily received their money out of the fund, so if they made a withdrawal today, how much money would they get?

“Now that is different to the closing account balance as the amount of money your client gets today if they took their money out of the fund is a net market value.”

Burgess explained the difference between net market value and market value was the disposal costs associated with selling the asset, therefore if the difference was substantial, submitting a transfer balance account report (TBAR) to the ATO was recommended.

“Where I’m going with this is if you have clients who have a large exposure of property in their SMSF, it might be a good idea to use a TBAR to report your clients’ total super balance,” he said.

“Otherwise the ATO will use the closing account balance, which is going to overstate your clients’ total super balance because it’s based on market value, when the law tells us we essentially have to use a net market value.

“You may have some situations where your clients’ total super balance is overstated so if you’re in that situation, use a TBAR to advise the ATO of its lower value.”

He stressed this could be the difference between a client being able or unable to make a non-concessional contribution (NCC) in this year.

“Because remember, if they’re over $1.6 million on 30 June prior, they don’t have excess or an NCC in this financial year,” he said.

“The ATO’s figures say there are about 10,000 individuals who are on the cusp of the $1.6 million total super balance, based on information they have.

“It’s been suggested there’s many more that will be impacted by this because it’s not just the $1.6 million threshold that we’re interested in but also these other thresholds which determine bring-forward contributions, so if your clients are close to those thresholds, I’d be having a close look at the closing account balance being reported on the SMSF annual return and making sure it’s a correct figure for your clients’ value.

“If it’s a big difference between net market value and market value, it’s worthwhile putting a TBAR in.”

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