Accounting, Superannuation, Tax

Tax-effective accounting needed for TSB

SMSF practitioners must consider implementing tax-effective accounting when preparing annual accounts for an SMSF as this can determine a member’s total super balance (TSB), a technical expert has said.

SupeConcepts SMSF technical services executive manager Mark Ellem said SMSFs operate differently to other entities, such as companies, trusts, partnerships and sole traders, when it comes to preparing financial statements because the assets are disclosed at market value, as stipulated in section 8.02B of the Superannuation Industry (Supervision) Regulations 1994, rather than historical cost.

Accountants will be reporting member balances for TSB purposes so if they exceed the relevant thresholds, including for catch-up concessional contributions as will be seen in the new work test exemption, it could mean the client misses out on the inflated market value, Ellem said.

“But if the member said ‘okay, convert everything to cash on 30 June, sell it all’, would they get that balance?” he told the 2018 Institute of Public Accountants National Congress pre-congress workshop in Sydney today.

“Would they get the balance of gross market value less liabilities? What’s the liability missing? Tax.”

He said tax-effective accounting is beneficial because of three factors: transfer of benefits out, benefit payments (accumulation phase) and a marriage or de facto split.

“If you’ve got a split between husband wife and if one always goes out and you calculate the rollover balance based on gross assets that don’t include the potential tax liability, the one who leaves gets the greater balance and the one who’s left is stuck with the whole tax bill,” he said.

He also said there are myriad factors that hinge on the total super balance, such as the non-concessional contributions cap, catch-up concessional contributions, the new work test exemption, government co-contributions and the spouse offset.

“So we’re reporting this in the return and if the client misses out because we didn’t report the inflated figure, they’re not going to be happy with us,” he noted.

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