SMSF practitioners must take care as to how they calculate a client’s total super balance (TSB) as a miscalculation may deny them the ability to bring forward non-concessional contributions (NCC), according to an SMSF technical specialist.
Smarter SMSF chief executive Aaron Dunn said TSBs are often based on the account balance of a member, but that figure did not consider potential deductions that would only apply when the member was exiting the fund.
“The account balance of a member is distinctly different to the requirements of the definition for TSB purposes, and if you look at member information in the SMSF annual return, it lists the accumulation balance, pension balances and the closing account balance,” Dunn said during a presentation at the 2022 SMSF Day in Sydney today.
“We also have two labels at the bottom of that section – accumulation-phase value and retirement-phase value – which allow you to put in a different number if you believe that the value of those accounts for the definition of the TSB will be different.”
He said these values could be different because the definitions of accumulation-phase value and retirement-phase value are based on values where the member was to cease their interest in the fund, and that value may be the most useful for calculating bring-forward NCCs.
This value was known as a ‘termination value’ and would consider issues such as the tax effect of unrealised gains, which would not have been considered up to that point, he added.
“If the member is sitting on substantial unrealised gains in the fund and we have not accounted for them in some way, then for the purposes of the accumulation phase that could be the difference between one year, two years, even three years of NCCs,” he said.
He said any consideration of termination values would require evidence linking them to the relevant label in the annual return.
“That will be the label the ATO will be referring to for the purposes of determining to what extent the member can use accumulation-phase value for determining their total super balance for NCC purposes,” he said.
