- What is a person’s ‘Total Superannuation Balance’?
- 1. Making non-concessional (after-tax) contributions and your TSB
- 2. Your TSB and using the bring-forward rule when making non-concessional contributions
- 3. Spouse contributions tax offset and your TSB
- 4. Co-contributions and your TSB
- 5. Your TSB and catch-up concessional contributions (from 1 July 2018)
- 6. Your SMSF, your TSB and event-based reporting requirements (from 1 July 2018)
- 7. Your SMSF, a fund member in retirement phase with a Total Superannuation Balance of more than $1.6 million SMSF)
- In detail: Three components that make up your Total Superannuation Balance
Saving for retirement in Australia has become a lot more complicated since July 2017. The federal government has cut the annual contributions caps and has also restricted the amount of money you can transfer to retirement phase.
For Australians with large superannuation balances, the federal government has also limited the capacity to make non-concessional (after-tax) contributions, restricted the use of the bring-forward rule), and limited the availability of the co-contributions scheme and the spouse contributions tax offset. (I explain each of these concepts later in the article.)
As a means of restricting (in particular) the application of the super contributions rules, the federal government has introduced a new superannuation concept, called Total Superannuation Balance. A person’s Total Superannuation Balance is used to track and limit the amount of superannuation that Australians can contribute to super.
If you run a SMSF, a person’s Total Superannuation Balance also has a bearing on some SMSFs in retirement phase.
Your Total Superannuation Balance (TSB) may be important if you are considering using any of the following contributions strategies:
- Non-concessional (after-tax) contributions
- Bring-forward rule
- Spouse contributions tax offset
- Catch-up concessional (before-tax) contributions from July 2018
Further, if your run a self-managed super fund, your Total Superannuation Balance is also important if you have SMSF members in retirement phase, under the following scenarios:
- SMSF event-based reporting requirements from July 2018
- Where a SMSF fund member in retirement phase has a Total Superannuation Balance of $1.6 million or more in super
What is a person’s ‘Total Superannuation Balance’?
A person’s Total Superannuation Balance is a measure used to determine if certain superannuation contributions incentives are available to that person. If a person’s TSB is below a certain threshold ($1.6 million for the 2017/2018 year) then several super contributions incentives remain available.
Important: An individual’s TSB is measured as at 30 June of the previous financial year.
Note: Other important TSB thresholds include a $500,000 TSB (in relation to the catch-up provisions for concessional contributions from July 2018), and in relation to SMSFs, a TSB threshold of $1 million applies for quarterly event-based reporting (from July 2018), and a TSB threshold of $1.6 million applies for SMSFs in determining whether the SMSF can use the segregated assets method for determining tax-exempt income (see later in the article).
The definition of ‘total superannuation balance’ is complicated but essentially includes all of your super accounts (both in accumulation phase and in retirement phase), including inactive ones, and the definition is set out in more detail below.
According to the explanatory memorandum accompanying the new legislation, an individual’s Total Superannuation Balance at a particular time includes the following three items:
- The value of all superannuation interests in accumulation phase (that is, all super interests not in retirement phase)
- The balance of a person’s transfer balance account (generally commencement value of a superannuation pension), adjusted to reflect the current value of account-based pension interests in retirement phase (pension phase)
- ‘In transit’ rolled over superannuation benefits (that are not yet reflected in the balances mentioned in the previous two bullets).
Note: The sum of these amounts is then reduced by the sum of any structured settlement contributions (if applicable), which relate to compensation payments resulting from serious injury and income loss that are rolled over into super.
At the end of the article, I explain what these three items mean in more detail.
Note: A related threshold, but measured differently, is the $1.6 million general transfer balance cap, which is a limit on how much superannuation you can transfer into retirement phase, and in turn limits the amount of super savings that can enjoy tax exempt earnings. The total superannuation balance threshold of $1.6 million is indexed in line with the $1.6 million general transfer balance cap (for information on the $1.6 million transfer balance pension cap, including indexation, see SuperGuide article Retirement phase: A super guide to the $1.6 million transfer balance cap).
Anyone with a Total Superannuation Balance of more than $1.6 million for the 2017/2018 year (measured as at 30 June 2017) cannot make non-concessional contributions, that is, they have a non-concessional contributions cap of nil.
If your total superannuation balance is $1.6 million or more (applicable for the 2017/2018 year), you cannot make non-concessional contributions (NCCs) for the 2017/2018 year, and in turn, you cannot take advantage of the bring-forward rule.
Quoting from the explanatory memorandum (Chapter 5) accompanying the legislation, “If an individual’s total superannuation balance as at 30 June of the previous financial year, is equal to or greater than the general transfer balance cap in the relevant financial year ($1.6 million in the 2017-18 financial year), they are not eligible for any non-concessional contributions cap in that financial year. This eligibility criterion applies in every year of an individual’s bring forward period.”.
Note: The $1.6 million ‘Total Superannuation Balance’ threshold for making non-concessional contributions is based on an individual’s balance as at 30 June of the previous financial year. For the 2017/2018 year, Total Superannuation Balance is measured as at 30 June 2017.
For more information about the rules applicable to non-concessional contributions, see the following SuperGuide articles:
- Your 2017/2018 guide to non-concessional (after-tax) contributions
- New $100,000 cap: Cut to non-concessional contributions cap
- Non-concessional contributions: 10 facts about new $100,000 cap
- Super contributions: Bring-forward rule and your Total Superannuation Balance
Super alert! For the 2017/2018 year, if your Total Superannuation Balance is more than $1.4 million then you have limits on how you can use the bring-forward rule, and if your TSB is $1.6 million or more, then non-concessional contributions are not possible.
If your total superannuation balance (TSB) is less than $1.4 million on 30 June 2017, then you can make non-concessional contributions (NCCs) for the 2017/2018 year, and you can take advantage of the maximum bring-forward cap of $300,000, and your bring-forward period is 3 years.
Note: Special contributions limits apply for a person who has a Total Superannuation Balance of more than $1.4 million but less than $1.6 million. For more information, see SuperGuide article Super contributions: Bring-forward rule and your Total Superannuation Balance.
For more information about the bring-forward rules, see the following SuperGuide articles:
- Bring-forward rule: A definitive super guide
- After-tax super contributions: Beef up using a bring forward
- Super contributions: Bring-forward rule and your Total Superannuation Balance
- Understanding the transitional bring-forward rule for the 2017/2018 and 2018/2019 years
The spouse contributions tax offset allows a spouse to make super contributions on behalf of a lower-income earning spouse.
For the 2017/2018 year, if an individual has assessable income (plus total reportable fringe benefits plus reportable employer super contributions) of less than $37,000, then his or her spouse can make contributions on behalf of the low-income spouse and claim a tax offset. Reportable employer super contributions are employer contributions other than Superannuation Guarantee contributions, and RESC includes salary sacrifice contributions made on behalf of an employee.
The maximum tax offset of $540, provided an after-tax (non-concessional) contribution of at least $3000 is made to the low-income spouse’s super account, and the tax offset is progressively reduced until the tax offset reaches zero for spouses who earn $40,000 or more in assessable income in a year.
Super alert! A spouse cannot make super contributions on behalf of his or her spouse, if the spouse receiving the super contributions has a Total Superannuation Balance of $1.6 million or more at the end of the previous financial year. For the 2017/2018 financial year, TSB is measured as at 30 June 2017. The receiving spouse will also not be eligible for the spouse contributions, if the receiving spouse has exceeded their non-concessional (after-tax) contributions cap.
For more information about the spouse contributions tax offset, see the following SuperGuide articles:
- Boost your spouse’s retirement kitty: 10 things you need to know
- Super for beginners, part 7: Can I split my super benefits with my spouse?
- Contributing to your spouse’s super account (4 Q&As)
The super co-contribution scheme involves the federal government paying you a tax-free super contribution when you make a non-concessional (after-tax) contribution to your super account, subject to you satisfying a work test, an income test and an age test.
For the 2017/2018 year, if you earn $36,813 or less (for the 2017/2018 year), the federal government pays $0.50 (50 cents) for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $500 a year.
Super alert! Since 1 July 2017, if you exceed your non-concessional contributions cap in a financial year, or your total superannuation balance is equal to or greater than $1.6 million, then you will not be eligible for a government co-contribution.
For more information about the co-contribution scheme, see the following SuperGuide articles:
- Your 2017/2018 guide to non-concessional (after-tax) contributions
- Salary sacrificing will not increase co-contribution entitlement
- Does the government’s co-contribution count towards my contributions cap?
From 1 July 2018, if your Total Superannuation Balance (which includes combined balances if you have more than one super account) is less than $500,000 at the end of a financial year, then you will have the opportunity to utilise the unused portions of your concessional caps from previous years (up to 5 years’ worth) in the following financial year, or future years.
Important: The unused cap amounts can start to be carried forward from 1 July 2018, that is, from the start of the 2018/2019 financial year, which means the 2019/2020 year is the first financial year that individuals can take advantage of unused cap amounts from previous financial years.
Super alert! If your Total Superannuation Balance is $500,000 or more, then you cannot use the concessional contributions catch-up provisions. For more information see SuperGuide article Super opportunity: Catch-up concessional contributions from July 2018.
From 1 July 2018, any SMSF with a fund member or fund members who individually have a Total Superannuation Balance of $1 million or more will be required to report events affecting the fund member’s transfer balance, for example, starting a SMSF pension, “within 28 days after the end of the quarter in which the event occurs”.
If a SMSF does not have fund members in retirement phase with an individual Total Superannuation Balance of $1 million or more, then such a SMSF only needs to report such events annually. For more information, see SuperGuide article Compliance alert! 85% of SMSFs exempt from quarterly event-based reporting.
7. Your SMSF, a fund member in retirement phase with a Total Superannuation Balance of more than $1.6 million SMSF)
A SMSF cannot use the segregated assets method for identifying exempt current pension income (ECPI) for a financial year if the SMSF has:
- at least one member in retirement phase (receiving a super pension in retirement phase)
- a SMSF member has a Total Superannuation Balance of more than $1.6 million, and
- the SMSF member with the TSB greater than $1.6 million, is receiving a super pension in retirement phase
If a SMSF has at least one fund member that falls into the category above, then the SMSF must use the proportionate method when identifying exempt current pension income (ECPI).
For more information about superannuation pensions in retirement phase, and ECPI, see the following SuperGuide articles:
- Retirement phase: A super guide to the $1.6 million transfer balance cap
- SMSF pension: What happens if I don’t withdraw the annual minimum pension payment?
- SMSF pension earnings remain tax-free after death
- Retirement and tax: What are the minimum pension payment rules?
In detail: Three components that make up your Total Superannuation Balance
Continue reading to discover more information about the three components that make up your total superannuation balance.
1. Accumulation phase value of a superannuation interest
According to the explanatory memorandum (Chapter 5), the default rule for calculating the accumulation phase value of an individual’s superannuation interest at a specific time, is “the total amount of superannuation benefits that would become payable if the individual voluntarily caused the interest to cease at that time. Otherwise the accumulation phase value is the value of the superannuation interest as set out in the Income Tax Assessment Regulations 1997”.
If you have a single interest in a super fund, then this value will be your ‘withdrawal benefit’ amount. If you have more than one interest in a super fund (such as a right to a defined benefit pension on resignation), then only the accumulation account balance is counted towards this first limb of the total superannuation balance.
If you have accumulation phase interests in more than one super fund, you include the combined amount of all of these interests in this first limb/component.
2. Retirement phase value, or pension phase value (transfer balance account)
The second component of the ‘total superannuation balance’ is the retirement phase value, or pension phase value (that is, the balance of an individual’s transfer balance account), which is generally going to be the commencement value of a superannuation pension. The transfer balance account is the net amount of capital an individual has transferred to pension phase, and may be adjusted to reflect the current value of account-based superannuation interests in pension phase.
Not clear enough? Blame Treasurer Scott Morrison for introducing this ridiculously complicated total superannuation balance threshold for taking advantage of the non-concessional contributions rules (and also for taking advantage of the catch-up concessional contributions provisions).
Note: The transfer balance account is already required to be calculated by super funds to comply with the $1.6 million transfer balance cap rules (for background on this policy see SuperGuide article Burden on retirees: Monitoring the $1.6 million transfer balance cap).
3. Rollover superannuation benefit
The third limb of the total superannuation balance definition is any rollover super benefits that a person has arranged to be transferred, and at year-end, does not yet appear in the accumulation phase value or in the balance of the transfer balance account. This is a catch-all limb to ensure that any rollovers at the end of the financial year are included in the calculation.