By Monica Rule

Since the changes to superannuation from 1 July 2017, a member’s total superannuation balance has become an important factor.

A member’s total superannuation balance is the sum of all their accumulation accounts and retirement accounts across all of their superannuation funds minus any personal injury (structured settlement) contributions that have been paid into any of the member’s superannuation funds.

Some self managed superannuation fund (SMSF) members are calculating their total superannuation balance incorrectly by only counting their superannuation savings in their SMSF and not including their superannuation balances in their other superannuation funds. 

The following areas of superannuation are affected by a member’s total superannuation balance.

Non-concessional contributions

A non-concessional contribution is personal contribution made by a member where the member has not claimed a tax deduction on the contribution.  It is also referred to as a “post tax” contribution because the contribution is usually made from a member’s wages that has already paid tax.  When it is contributed into an SMSF, no additional tax is payable.  As no tax concession applies, it is referred to as “non-concessional” contribution.  For an SMSF member to be eligible to make non-concessional contributions into their SMSF, one condition they must meet is that their total superannuation balance must be below $1.6 million immediately before the start of the financial year in which the contribution is made. 

Catch-up concessional contributions

A concessional contribution is a contribution made by a member where the member claimed a tax deduction on the contribution.  It can also be a contribution made by the member’s employer due to the requirements of the Superannuation Guarantee law.  If an employee also has a salary sacrifice arrangement (SSA) with their employer to contribute some of their pre-tax wages into superannuation, then the SSA contribution is also treated as a concessional contribution. Superannuation funds pay 15% tax on concessional contributions. Because the concessional tax rate applies, the contribution is referred to as a “concessional” contribution.  SMSF members are able to contribute concessional contributions of up to a total of $25,000 per annum.  However, from 1 July 2018, if a member did not make any concessional contributions in one year, then provided their total superannuation balance is below $500,000, immediately before the start of the financial year in which the contribution is made, they can carry over any of the unused limit from 1 July 2018 in the following five consecutive years. 

Spouse contributions

For a member to be able to make contributions for their spouse, the spouse’s total superannuation balance must be below $1.6 million immediately before the start of the financial year in which the contribution is made.  The spouse must also not have exceeded their non-concessional contributions cap in the financial year.  The spouse will need to be below the age of 70 and not living apart on a permanent basis with the member at the time the contribution is made.  If the spouse is aged 65 to 69, they will also need to satisfy the work test (i.e. 40 hours in 30 consecutive days) to be eligible to receive spouse contributions.  The age and work status of the contributing member is not relevant.  The contributing spouse can claim a tax offset of 18% of the maximum non-concessional contributions of $3,000, provided their spouse’s annual income does not exceed $37,000.  The tax offset gradually reduces once the spouse’s income exceeds $37,000 and cuts out once their income reaches $40,000.

Government superannuation co-contributions

The government will contribute fifty cents for every dollar of non-concessional contributions made by a member into an SMSF.  The conditions for the entitlement is that the member’s total superannuation balance must be below $1.6 million, their total income must not exceed $52,697, and the member must be under the age of 71 at the end of the income year in which their contribution is made.  The maximum non-concessional contribution that is taken into account is $1,000.  The maximum co-contribution of $500 is reduced by 3.333 cents for every dollar above the member’s income in excess of $37,697.

Transfer balance account reporting

If any SMSF member has a total superannuation balance of $1 million or more, then their SMSF must report their transfer balance account transactions within 28 days after the end of the quarter in which the event occurs.  Where all SMSF members have a total superannuation balance of less than $1 million, then their SMSF can report on an annual basis at the same time as when its tax return is due.  

Tax exemptions on pension income

If an SMSF has a member with a total superannuation balance of more than $1.6 million across all of their superannuation funds (as at 30 June of the previous financial year) and the person is in receipt of a retirement pension, then their SMSF can only calculate the tax exemption using the unsegregated or proportionate method.  However, if an SMSF has members in receipt of a retirement pension and each of these members’ total superannuation balances do not exceed $1.6 millionacross all of their superannuation funds (at 30 June of the previous financial year), then the SMSF can claim the tax exemption using the relevant segregated and/or unsegregated method.

Work test exemption for recent retirees

In the 2018 Federal Budget, the government proposed that from 1 July 2019, an individual aged 65 to 74 with a total superannuation balance of less than $300,000 will be permitted to make voluntary contributions for twelve months from the end of the financial year in which they last met the work test. This means these individuals will receive a one-year exemption from the work test to be able to make either concessional or non-concessional contributions.

Opt-in requirements for life insurance

In the 2018 Federal Budget, the government proposed that from 1 July 2019, life insurance cover will move from the default framework to an opt-in basis for members with balances of less than $6,000,members under the age of 25 years, or members whose accounts have not received a contribution in 13 months and are inactive.

Capping passive fees

In the 2018 Federal Budget, the government proposed that from 1 July 2019, a three per cent annual cap will be placed on passive fees (i.e. administration and investment fees) charged by superannuation funds on accounts with balances below $6,000.         

For Gold and Platinum members, Monica has provided areas of superannuation that are not affected by a member’s total superannuation balance.

Monica Rule is an SMSF Specialist and author of The Self Managed Super Handbook – superannuation law for SMSFs in plain English www.monicarule.com.au

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. The statements and opinions are the expression of the author, not Law Central, and have not been checked for their accuracy, completeness or changes in the law. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin.

Related documents:

• Self Managed Superannuation Fund
• SMSF - Update Rules
• Pension Pack for Self Managed Super

Related webinars:

• Webinar Recording - SMSF End of Year Essentials