For pre-retirees, it represents how much an individual has across all accumulation phase interests. How much someone has is actually a reflection of how much they would be entitled to receive should they take their benefit out. Therefore, the accumulation phase value, particularly when referencing SMSF members, should account for such things as deferred tax liabilities, but equally future income tax benefits. This is something that not all SMSFs account for. It is also worth pointing out that SMSFs reflect the market value of assets held at 30 June each year; this market value does not incorporate the cost of selling the assets. 

In addition to the accumulation values, the total superannuation balance also includes the current day value of any retirement phase account-based pensions. Of course, as stated, nothing is ever that simple and the total superannuation balance when referencing retirement phase pensions comes with complexities, and don’t forget any defined benefit income streams the client may have. 

Rather than identify the total superannuation balance as the value of any account-based income stream, in actual fact, the amount is calculated as an individual’s transfer balance, modified if the individual is in receipt of a prescribed account-based pension. Unsurprisingly, the prescribed account-based pensions incorporate every type of retirement phase account-based pension an SMSF is likely to pay, so in every set of circumstances where an SMSF pays an account-based pension, the transfer balance account needs to be modified. 

What are the modifications? 

If we assume a normal scenario (i.e. an SMSF without any structured settlement contributions), bankruptcy or relationship breakdown payment splits, then the modification requires you to disregard any credits associated with commencing an income stream and disregard any debits linked to commutations and failures to comply with commutation and pension standards. 

You are then required to increase the transfer balance account by the value of the retirement phase income stream if the amount was withdrawn in full. Therefore, with the exception of structured settlement payments, the only information from the transfer balance account that is considered in the total superannuation balance is any excess transfer balance earnings. 

For capped defined benefit income streams, the total superannuation balance is the transfer balance account value. Importantly, market-linked pensions, regardless of when they are commenced, are account-based pensions for total superannuation balance purposes, even if they are capped defined benefit income streams for transfer balance cap purposes.   

In addition to our accumulation and pension interests, the total superannuation balance also incorporates roll-overs that are in transit, but excludes structured settlement amounts. 

Why it is so important 

The total superannuation balance is important because it dictates an individual’s ability to utilise the non-concessional contribution cap and bring-forward provisions. Further, it impacts the ability to make eligible spouse contributions and be entitled to government co-contributions. From 1 July 2018, the capacity to carry forward unused concessional contributions has come into effect and the ability to use this will also be measured against the total superannuation balance.  

Non-concessionals and the bring-forward rule 

An important distinction to be made when considering contribution caps is the caps don’t restrict an individual from contributing to super. They only restrict how much can be contributed with tax concessions attached. If an individual wants to engage in a drawn-out process with the ATO, then making contributions that deliberately exceed the cap is a guaranteed way to start that process. It would be surprising in the current environment if a licensee would approve their authorised representatives promoting schemes that brought their practices to the attention of the regulator.  

The non-concessional contribution cap is now $100,000, equating to a maximum “bring-forward” limit of $300,000. 

Post 1 July 2017, a member’s ability to utilise the non-concessional cap and subsequent bring-forward amount will be subject to their total superannuation balance, and age restrictions still apply to the bring-forward rules. The rules require an assessment of a member’s total superannuation balance at the preceding 30 June (preceding the contribution) and will be determined as follows: 

• TSB less than $1.4m - bring forward $200,000, maximum contribution = $300,000
• TSB between $1.4m and $1.5m - bring forward $100,000, maximum contribution = $200,000 
• TSB between $1.5m and $1.6m - bring forward $0, maximum contribution = $100,000
• TSB greater than $1.6m – non-concessional cap = $0

The current problem is that if you don’t fully utilise the bring-forward amount, then an assessment needs to be made in future years as well. You also have to deal with the issue of transitioning from the old cap to the new.

The bring-forward transitional trap

The bring-forward is triggered in the first year that a contribution exceeds the standard cap and is fixed for the following two financial years. Clients may have triggered the bring-forward prior to 30 June 2017 but not fully capitalised on the limit. For those clients that did trigger pre-1 July 2017, their capacity to contribute is based on how much they originally contributed and what their total superannuation balance is.

Under the transitional rules, where the cap wasn’t fully utilised, the following three-year limit applies: 

• 2015–16 trigger = $460,000 
• 2016–17 trigger = $380,000

As an example, a 60-year-old client who contributed $400,000 during the 2016–17 year is unable to contribute further non-concessional contributions until the 2019–20 financial year. Then, of course, any further contributions will be linked to their total superannuation balance. 

Whilst any individual who contributed in the 2015–16 year is now outside the transitional rules, it’s important to recognise whether the bring-forward rules were applied as there could be a contribution made post 1 July 2017 that is linked to the transitional rules. For example, if a client contributed $250,000 in 2015–16 and a further $210,000 in 2017–18, then their bring-forward resets from 1 July 2018.

Non-concessional cap trap 

One of the understated traps of the caps and the total superannuation balance is personally funding super fund expenses. Previously, it was widely accepted that meeting a fund expense could be treated as a contribution. This is still the case, but now the capacity to do so will be linked to a member’s total superannuation balance. 

Catch-up concessional contributions and other measures 

The real impact of the catch-up concessional contributions will start to be felt from 2019–20, but for the purposes of total superannuation balance, the ability to use the rules only applies to members with a total superannuation balance of less than $500,000. 

This point is highlighted to show just how far the impact of the total superannuation balance will extend, not just those with higher balances. The total superannuation balance also impacts segregating assets for taxation purposes. 

Overall, the total superannuation balance has a major impact, not just on the strategies that have been contemplated in the past, such as the re-contribution strategy, but also the timing of strategies to be implemented in the future. To be sure of the total superannuation balance requires you to be sure that the fund is up to date as early as possible. 

Tim Miller, founder, Miller Super Solutions