Understanding Total Superannuation Balance
The concept of Total Superannuation Balance (TSB) has been relevant since 1 July 2017 when it was introduced as part of a package of reforms to better target several superannuation concessions. Currently, a client’s TSB at 30 June determines access to several superannuation concessions in the following income year, including:
- Access to carry forward unused concessional contribution cap amounts
- Their non-concessional contribution (NCC) cap, including under the bring forward rule
- Access to the work test exemption for making personal deductible contributions
- Access to the government co-contribution
- Their spouse’s access to the spouse contribution tax offset
- Their SMSFs ability to use the segregated asset method for calculating exempt current pension income
From 1 July 2025, the proposed new earnings tax on high super balances, to be known as Division 296 tax, will also rely on the concept. For this purpose, the TSB value at the prior year’s 30 June will determine who is subject to the new tax and the change in TSB from one year to the next will determine the amount of ‘earnings’ and hence the tax liability. Modifications are proposed to ensure contributions and withdrawals do not skew the earnings calculation. At the time of writing, this announced change was not yet law.
What is Total Superannuation Balance?
At a high level, a client’s TSB represents the value of all a client’s superannuation interests. The inclusions are:
- Accumulation phase interests
- Retirement phase interests
- Rollovers in transit
- LRBA loans
An adjustment is also made to exclude any contributions arising from compensation for personal injury that meets specific requirements.
Each of these components are defined in the tax law.
TSB in detail
With each of these components, modifications may be made to achieve the intended result.
| Component of TSB | Valuation | Modifications |
Accumulation phase interests | Include total amount of super benefits, not in retirement phase, that would be payable if super interests voluntarily ceased at the time of calculation (unless the law specifies an alternative way of valuing the interest). Often referred to as the withdrawal value, it includes the value of all accumulation accounts and income streams not in retirement phase, eg transition to retirement income streams and deferred income streams. | |
+ Retirement phase interests | Include transfer balance account value (not below zero), of all retirement phase income streams1. Modifications apply in the case of account-based income streams.
For an income stream that meets the tax law definition of a capped defined benefit income stream, the transfer balance account value is a ‘special value’ calculated based on a legislated formula. | For an account-based income stream, transfer balance account value is generally replaced with amount of super benefits that would be payable if interest is voluntarily ceased at the time of calculation. Often referred to as the withdrawal value. |
+ Rollovers in transit | Include rollover amounts paid and yet to be received. | |
+ LRBA loans | Include outstanding balance of a limited recourse borrowing arrangement (LRBA) entered into from 1 July 2018 where2:
| Exclusions apply in certain circumstances where a pre-1 July 2018 LRBA is refinanced. For Division 296 tax purposes only, the Government proposes to exclude LRBA amounts. |
- Personal injury or structured settlement contributions | Exclude any personal injury or structured settlement contributions that have been paid into a client’s super. These are contributions that arise from the settlement of a claim for personal injury, workers compensation or court order where two legally qualified medical practitioners have certified that, because of the injury, it is unlikely that the client can ever be gainfully employed in a capacity for which they are reasonably qualified because of education, experience or training. Other conditions apply. |
For a client with only accumulation phase interests and/or account-based income streams, their TSB will typically be the withdrawal value of all of their superannuation interests. This may be different from the total of their account balances because the withdrawal value may take into account the costs that would be incurred when an account is closed and benefit withdrawn, whereas the account balance may not.
The approach taken to calculating the withdrawal value may vary from one fund to another, based on the fund rules and practices of the fund trustee.
Examples
The simple examples below are for illustrative purposes only. For more details and examples, refer to LCR 2016/12.
Example 1 – Accumulation phase interests only
On 30 June 2023, Alice has an accumulation phase account balance in a self-managed superannuation fund (SMSF) of $2 million. The underlying investments include cash, shares and managed funds.
As noted above, for an accumulation phase interest, the TSB value is the withdrawal value. If Alice was to voluntarily close her account and withdraw all her benefits, the SMSF trustee would need to redeem the shares and managed fund units, realising any capital gains and losses. The disposal of assets may give rise to capital gains tax and other transaction costs which are not reflected in her account balance before the withdrawal. Upon withdrawal, the trustee may retain an amount to cover any such costs, to ensure these costs are not borne by the remaining members of the fund.
The trustee estimates that redeeming Alice’s investments on 30 June 2023 would have given rise to net costs of approximately $120,000.
Alice’s TSB on 30 June 2023 is therefore $1,880,000.
Example 2 – Accumulation phase and account-based income streams
Ben, aged 65, has an accumulation phase account and an account-based pension in his superannuation fund. He first commenced his account-based pension on 1 October 2018 with $1.2 million. He has retained some benefits in an accumulation phase account while he is still contributing to his superannuation. His transfer balance account value is $1.2 million. At no time has Ben had an excess transfer balance.
On 30 June 2023, his account-based pension balance had grown to $1.5 million, and his accumulation phase account was $400,000.
As noted above, for an account-based income stream, the transfer balance account value is replaced with the withdrawal value, similar to an accumulation phase interest. If Ben had voluntarily withdrawn all his benefits on 30 June 2023, the trustee would have withheld an amount to cover estimated transaction costs of $20,000 for his accumulation account and $1,200 for his account-based pension account.
Ben’s TSB on 30 June 2023 is therefore $1,878,800.
Example 3 – Defined benefit income stream
Cecelia commenced receiving a lifetime defined benefit pension on 1 July 2020. The income stream is a capped defined benefit income stream as defined in the tax law.
Cecelia has no other amounts in superannuation.
Her TSB on 30 June 2023 is the same as her transfer balance account value on that day. For a defined benefit income stream, the value for this purpose is the ‘special value’ of the income stream, worked out as follows.
Step 1: Calculate annual entitlement
Let’s assume that Cecelia’s first monthly payment after the income stream commenced in the 2020/21 year is $8,000, payable in the middle of July.
Annual entitlement
= 365 x first income stream benefit entitlement post-commencement/no. of whole days to which benefit relates
= 365 x $8,000/31
= $94,193.55
Step 2: Calculate ‘special value’
Special value
= annual entitlement x 16
= $1,507,096.77
Note that if Cecelia was instead in receipt of a non-commutable life expectancy-based income stream, for example an annuity payable for a fixed term based on her life expectancy at commencement, the formula for calculating the ‘special value’ (and hence TSB) would be:
Special value = annual entitlement x remaining term
Where remaining term means the number of years remaining in the period throughout which the income stream benefits are payable, rounded up to the next whole number.
This example is based on existing law. As noted earlier, changes are proposed which will impact the TSB value of non-account based income streams from 1 July 2025.
Example 4 – Rollovers in transit
Late in June 2023, Daniel decided to move his accumulation phase benefits to a new superannuation fund. The rollover of $1.6 million was paid on 29 June 2023, but wasn’t received by the new fund until 3 July 2023. Daniel has no other amounts held in superannuation.
Daniel’s TSB on 30 June 2023 is $1.6 million.
Example 5 – SMSF LRBA, condition of release met
Eve is the sole member/corporate trustee director of his SMSF which has invested in a residential property via a limited recourse borrowing arrangement (LRBA), along with other assets that support her interest in the fund. The LRBA was established in 2019 with a commercial lender. Eve has recently reached age 65 and therefore met the ‘reaching age 65’ condition of release. The property wholly supports Eve’s interest in the SMSF.
On 30 June 2023, the outstanding loan balance was $500,000.
Eve has an account-based pension in the SMSF. The withdrawal value on 30 June 2023 was $1.6 million.
Eve’s TSB on 30 June 2023 is $2.1 million.
For further information and examples about when an LRBA arrangements is taken into account in determining TSB, refer to LCR 2016/12.
Example 6 – SMSF LRBA, related party lender
Frank is the sole member/corporate trustee director of his SMSF which has invested in a commercial property via a LRBA. The LRBA was established in 2020 with Frank as the lender. Frank has ensured the loan replicates a commercial arrangement, so the terms are consistent with an arm’s length offering.
On 30 June 2023, the value of the property was $800,000 and the borrowing was $600,000. The whole of the net property is held to support Frank’s interest in the fund.
Frank only has an accumulation interest in the SMSF and the withdrawal value of this interest on 30 June 2023 was $2.4 million.
Frank’s TSB on 30 June 2023 is $3 million.
For further information and examples about when an LRBA arrangements is taken into account in determining TSB, refer to LCR 2016/12.
Example 7 – Structured settlement contributions
Geri was awarded a compensation payment of $3 million for personal injury in August 2019. Geri’s medical practitioners have certified that, because of the injury, it is unlikely that she can ever be gainfully employed in a capacity for which she is reasonably qualified because of education, experience or training. Geri contributed the full proceeds to superannuation under the personal injury contribution cap exemption and commenced an account-based income stream under the permanent incapacity condition of release on 1 October 2019.
On 30 June 2023, the withdrawal value of Geri’s account-based pension was $3.1 million.
Subtracting the structured settlement contribution means that Geri’s TSB on 30 June 2023 is $100,000.
Note that this is a simplified example of the TSB calculation where there has been a structured settlement contribution. Refer to LCR 2016/12 for a more detailed example (Example 5).
Administrative arrangements
A client’s TSB is worked out by the ATO based on information reported by superannuation funds.
Generally, a member’s TSB in an APRA-regulated super fund on 30 June is reported by the fund by the following 31 October.
For members of SMSFs, the TSB in the SMSF is reported as part of the annual return, with varying due dates depending on the fund’s circumstances. See ATO: Self-managed super funds, Lodge SMSF annual returns for more information.)
Once available, a client can view their TSB for the previous 30 June in ATO online services through myGov or the ATO app.