It may be beneficial for SMSF members to calculate and record their total super balance (TSB) as at 30 June 2017 via a transfer balance account report (TBAR) rather than by way of the fund’s annual return, particularly if their retirement savings assets are close to $1.6 million, a technical expert has said.
SuperConcepts technical services and education general manager Peter Burgess told delegates at the recent SMSF Professionals Day 2018, co-hosted by selfmanagedsuper and SuperConcepts: “A client’s total super balance is made up of the accumulation-phase balance, the retirement-phase balance and rollovers in transit, but the ATO has a problem in the first year.
“We know the accumulation-phase balance is supposed to represent the net market value, that is, what the member gets if they were to take their money out of the fund today.
“But the ATO has a problem because the only way they can calculate the client’s total super balance at the moment is to base it on the closing account balance on the SMSF annual return.
“What do we know about that closing account balance – that is market value.”
Legislation dictates SMSF members only need to use net market value to determine their accumulation-phase balance for TSB purposes, Burgess noted.
However, there is an important difference between the net market value of a member’s benefits and the market value of a member’s benefits as net market value takes into account items such as asset disposal costs, he said.
According to Burgess, this disparity could be significant in the case of an SMSF predominantly invested in property because the disposal costs might be quite high.
In these situations, using net asset value in the TSB calculation could determine whether the member is over the $1.6 million limit, in turn denying them the opportunity to make non-concessional contributions for that year, he added.
Burgess though pointed out there is a possible solution.
“So if you have clients who are pushing up against the $1.6 million cap, it might be in their interest to grab yourself a TBAR, that’s the form you use to report events for transfer balance cap purposes, and you can on the TBAR report a client’s balance for total super balance purposes,” he suggested.
“If the annual return is going to overstate the client’s total super balance because it’s working on market value, grab yourself a TBAR because it works off net market value.
“It might be all your client needs to get under the $1.6 million and they can make non-concessional contributions, or it may get them under the $500,000 limit, allowing them to make catch-up concessional contributions.”