Focus on SMSF modified balance: Dunn

Tax inspector investigating financial documents through magnifying glass.

The modified transfer balance must be considered for TSB.

Advisers need to focus on the modified transfer balance of SMSFs and ensure it reflects current value when calculating their total superannuation balance (TSB), an industry expert has said.

Smarter SMSF chief executive and co-founder Aaron Dunn told the SMSF Day 2018 seminar in Sydney today that all SMSFs operate with a modified transfer balance in theory as advisers need to ensure the balance of that account reflects the current net market value.

“So when we look at the calculation here we’re not simply looking at the transfer balance, what is reflected or reported to the ATO,” Dunn said.

“Most instances we’re looking at the modified balance because we’re going to need to reflect it to its current value. We then need to add in any rollover benefits.”

He said when advisers look at the calculation of the TSB, they need to consider the member’s accumulation-phase value and other elements that are not in the retirement phase.

“If something is not in the retirement phase, then it is by default included in the accumulation phase. So what is an income stream that is not in the retirement phase? Transition-to-retirement income stream (TRIS),” he said.

“Our calculation here in the accumulation phase also incorporates a TRIS, but only until such time that the TRIS moves into the retirement phase. Then we actually have a process whereby that amount is now reported against an individual’s transfer balance cap.”

It is at this point advisers take it from the accumulation phase value and put it into the transfer balance or the modified transfer balance, he added.

He also suggested advisers should use tax-effect accounting with their SMSF clients despite there being no obligation to do so as SMSFs are non-reporting entities.

He said from a Superannuation Industry (Supervision) Act perspective advisers have been required to value funds’ assets to their market value for some time.

“We’re not factoring in here any provision for the income tax liability that may be sitting inside this account,” he noted.

“So this is not saying for you, you should now be using tax-effect accounting, but what I want to highlight here is understanding some of these tipping points could become very interesting or advantageous for you to understand the implications of whether we should incorporate a liability for tax or not.”

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