Top tips for navigating TBC and TSB complexities

insignia financial mlc Superannuation SMSFs transfer balance cap total superannuation balance

19 October 2023
| By Industry |
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With the sweeping superannuation reforms on 1 July 2017, there has been a slew of new terminology and thresholds to contend with, and this has understandably led to some confusion.

In particular, the transfer balance cap (TBC) and total superannuation balance (TSB) are two of the areas causing difficulty.

Despite the unfortunately similar nomenclature, there are very few commonalities between the two, but a couple of instances where they do crossover. Understanding how to navigate the rules that relate to each is critical to avoid an advice blunder.

Here are my top tips to help you navigate the ABCs of the TSB and TBC:

TSB is in part, used to determine eligible to make certain types of super contributions and to apply certain offsets and exemptions. In contrast, the main function of TBC is to limit the amount that can be transferred into a concessionally taxed retirement phase income stream.

Seems simple so far? Here is where the complexity begins.

An individual’s personal TBC may be different to the general TBC at the time. Also, while TSB is used to determine eligibility to make certain types of super contributions, in some cases, these eligibility  thresholds are based on the general TBC.
 

Tip 1: Use myGov to keep track – but be cautious
While myGov is a valuable source of information, it shouldn’t be solely relied upon when providing TSB or TBC related advice. This is due to the timing of fund reporting related to contributions and TSB, meaning that the information provided might not always be up to date. It’s important to separately validate myGov records directly with super funds and your own records.

It’s also important to understand that for NCCs and unused CCs, eligibility will depend not only on the cap data in the relevant sections of myGov, but also on TSB which is reported on a separate screen and may be updated at different intervals – potentially well into the financial year.

TSB and TBC super fund reporting requirement

  TSB (30 June 2023)  TBA events reported within:
APRA funds Until 31 October 2023 10 days of the event
SMSFs/SAFs   In SMSF annual tax return (in some cases may be lodged as late as 5 June 2024) 28 days after the end of the quarter that an event occurs*

*Commutations in response to excess transfer balance determinations (10 days) and responses to commutation authorities (60 days) must be reported earlier. 

Tip 2: Death benefits advice – understanding the different TBC and TSB milestones

Death benefit pensions have different implications for TBC compared to TSB. The date and value of the credit to the beneficiary’s transfer balance account depends on whether there was a binding or reversionary nomination in place. However, the timing of when the pension will count towards TSB may be earlier. Understanding this is important to avoid excess contributions.

Timing and value of TBC credits

Nomination type Date of TBC credit Value of TBC credit
Reversionary 12 months from date of death of member Value of income stream at date of death
Binding, non-binding or no nomination At the time the new pension is paid to beneficiary Account value at the time new pension commences 

 

Although reversionary pensions don’t impact the TBC for 12 months, the calculation of TSB includes
retirement phase amounts reported to the ATO for 30 June, which is based on the actual balances.
This means that even though a credit does not appear in their TBA for 12 months, it will be included
in the following 30 June TSB.

This may impact contribution eligibility for the next financial year.

Tip 3: Proportional indexation and personal TBC

If an individual does not fully utilise their TBC, they receive proportional indexation of any future
general TBC increase based on the ‘unused proportion’ of their personal TBC. This means personal
TBCs for each client may vary. With every round of indexation of the general TBC, this calculation will
inevitably get more complex.

Where things get tricky is that the unused proportion of an individual’s TBC is determined by:

  • identifying the highest ever balance in their transfer balance account (TBA), and
  • their personal TBC on the first day they reached their highest ever balance.

This means the current TBA balance and actual retirement phase income stream balances are generally irrelevant to the calculation. Someone who has previously exhausted their personal TBC won’t be eligible for any proportional indexation in the future, even if they fully commute or have exhausted their income stream.

If in doubt, the highest ever balance is displayed in their ATO online account, and the ATO usually updates a client’s personal TBC in early July. However, as noted above, the information may not be up to date and care is required to ensure all TBA events are reflected in their indexed personal TBC before implementing any advice.

This is particularly important when looking to commence or refresh a pension with a larger balance prior to indexation of the general TBC. The figures that determine whether the general TBC indexes in the next financial year are released in January. If indexation occurs, important considerations include whether to start or refresh a pension before or after 1 July, the benefits to holding off (i.e. increased personal TBC), and implications of waiting (e.g. foregone period of nil tax on earnings in retirement phase, timing of sale of assets to manage tax).

Tip 4: Members of an SMSF
There are a couple of tips when advising clients who are members of an SMSF:

  • TBA reporting and timing

TBA reportable events recorded may not be sequential and may even lead to an excess transfer balance determination being issued. This may occur for example where a pension is ceased and rolled over to an APRA fund, where reporting of both funds means that the APRA fund reports a credit in respect of the new income stream prior to the SMSF reporting a debit for the commutation of the initial pension.

Affected clients should notify the ATO (ato.gov.au/object) as early as possible after receiving a notice. Alternatively, SMSF trustees might consider reporting these events earlier than required to avoid adverse outcomes for members.

  • Timing of asset valuations and impact on TSB

Care is required when providing contribution recommendations prior to members of SMSFs, particular if the SMSF has unlisted assets that require a valuation and their balance is nearing the relevant TSB threshold.

This is because an accurate 30 June TSB is not determined until asset valuations are complete. It is advisable to wait until the actual TSB figure can be obtained prior to implementing the advice. In cases where the advice is time critical (e.g. client turning 75), early planning is vital to ensure adequate information is available in order to avoid excess contribution issues.

Chris Chow is technical services manager at MLC Australia.

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