What is Law Companion Ruling 2016/12DC?
Law Companion Ruling 2016/12DC (‘LCR 2016/12DC’) provides guidance in determining an individual’s total superannuation balance. The concept of a total superannuation balance was introduced by the federal government in the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016, and it is a method for valuing all of an individual’s superannuation interests.
Why does it matter?
As explained in the Ruling, a total superannuation balance is relevant in certain circumstances:
- Eligibility for unused concession contributions cap carry forward
Where an individual has an unused concessional contributions cap for one or more of the previous five years, and their total superannuation balance is less than $500 000 just before the start of a financial year, they may be able to increase their concessional contributions cap.
- Bringing forward non-concessional contributions cap
An individual will be eligible for a non-concessional contributions cap of four times their concessional contributions cap in a financial year, if immediately before the start of that financial year their total superannuation balance is below the general transfer balance cap.
- Eligibility for the government co-contribution
- Eligibility for the tax offset spouse contributions
- Eligibility for SMSFs and small APRA funds to use the segregated assets method to determine their exempt current pension income (ECPI)
The following circumstances prevent SMSFs and small APRA funds from using the segregated assets method for an income year:
- A person has a total superannuation balance that exceeds $1.6 million; and
- The person is the retirement phase recipient of a superannuation income stream; and
- At a time during the income year, the person has a superannuation interest in the fund.
How is a total superannuation balance determined?
A total superannuation balance is comprised of five components. These are
- The accumulation phase value;
- The transfer balance or modified transfer balance;
- Rollover superannuation benefits;
- If applicable, any outstanding balance of a limited recourse borrowing arrangement (LBRA);
- And is reduced by any structured settlement contributions.
The accumulation phase value
This is the accumulation phase value of an individual’s superannuation interests that are not in retirement phase. Where any of the following circumstances apply, a superannuation interest will be in retirement phase:
- Where an interest supports a superannuation income stream where a superannuation income stream benefit is currently payable.
- Where an interest is a deferred superannuation income stream that has not yet become payable but the member has met a relevant condition of release.
- Where the interest is a transition to retirement income stream, a transition to retirement pension, a non-commendable allocated annuity or a non-commutable allocated pension (collectively known as TRIS) AND the member is 65 years or older, or they have met a relevant condition of release with nil cashing restriction, and they have notified the superannuation provider for the TRIS of that fact.
The accumulation phase value of an individual’s superannuation interest, at a particular time when the interest is not in the retirement phase, is the total amount of superannuation benefits that would become payable to them if they voluntarily cause the interest to cease at that time.
Transfer balance or modified transfer balance
Transfer balance is the second component of a total superannuation balance. The transfer balance cannot be less than nil. In determining a total superannuation balance, a transfer balance is modified if an individual has a prescribed account-based superannuation income stream in the retirement phase and/or they have made a structured settlement contribution.
Roll-over superannuation benefits
The sum of any roll-over superannuation benefits that are not reflected in an accumulation phase value or transfer balance, is the third component of a total superannuation balance. If at a particular time a roll-over superannuation benefit (that is not reflected in an accumulation phase value or transfer balance) is paid at or before that time, and received after that time by the complying superannuation plan, it is included in the total superannuation balance.
The fourth component is the outstanding balance of an LBRA. This component applies to LBRAs entered into on or after 1 Jul 2018. It also applies to LBRAs entered into prior to this date, that have since been refinanced if the refinanced LBRA is secured by the same asset, and the amount borrowed under the refinanced LBRA is equal to or less than the outstanding balance of the borrowing under the original LBRA.
Reduce by structured settlement contributions
The fifth and final component of a total superannuation balance is to reduce the sum of any structured settlement contributions from the sum of the accumulation phase value, the transfer balance or modified transfer balance, and any roll-over superannuation benefits.
The following examples are provided in LCR 2016/12DC, along with several others.
Example: Account-based pension and defined lifetime pension
Shane commenced both an account-based pension ($500,000) and a defined benefit lifetime pension ($500,000) on 1 December 2017. He has no remaining superannuation interests in accumulation phase. Shane’s transfer balance account commenced on 1 December 2017.
At the end of 30 June 2018, the amount that would be paid to Shane if he voluntarily ceased the account-based pension is $400,000.
Shane’s total superannuation balance at the end of 30 June 2018 is the sum of steps 1, 2, 3 and 4 reduced by step 5.
Step 1 – Accumulation phase value = $0
Step 2 – Modified transfer balance
Shane’s transfer balance at the end of 30 June 2018 is $1,000,000:
|1 December 2017||Account-based pension||$500 000||$500 000|
|1 December 2017||Defined benefit lifetime pension||$500 000||$1 000 000|
(a) Disregard the amount of the credit that has arisen in respect of the account-based pension ($500,000).
(b) Increase the balance by the amount that would become payable if the account-based pension was voluntarily ceased at the end of 30 June 2018 ($400,000).
The credit to Shane’s transfer balance account relevant to his defined benefit lifetime pension is not disregarded.
Modified transfer balance is $1,000,000 – $500,000 + $400,000 = $900,000.
Step 3 – Rollover superannuation benefits = $0
Step 4 – LRBA amounts = $0
Step 5 – Structured settlement contributions = $0
Shane’s total superannuation balance at the end of 30 June 2018 is $900,000.
Example: Roll-over superannuation benefit
MaiLin has $200,000 in the accumulation phase in her superannuation fund. MaiLin requests Fund A to roll-over $10,000 from Fund A to Fund B on 29 June 2019. It is received by Fund B on 1 July 2019.
MaiLin’s total superannuation balance at the end of 30 June 2019 is the sum of steps 1, 2, 3 and 4 reduced by step 5.
Step 1 – Accumulation phase value
MaiLin’s roll-over superannuation benefit is not included in the accumulation phase value of her superannuation interests in Fund A or Fund B at the end of 30 June 2019.
Value of MaiLin’s superannuation interest not in retirement phase = $190,000.
Step 2 – Transfer balance = $0
Step 3 – Rollover superannuation benefits Roll-over superannuation benefit not reflected in accumulation phase value or transfer balance = $10,000.
Step 4 – LRBA amounts = $0
Step 5 – Structured settlement contributions = $0
MaiLin’s total superannuation balance at the end of 30 June 2019 is $200,000.
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