Aware Super Logo

Home

Transfer balance cap

Excess on the transfer balance cap

Section: 9.5

If the balance exceeds the transfer balance cap at a particular day, the member has breached the transfer balance cap. Members who breach the cap are liable to excess transfer balance tax 1.

Under subsection 294-30(2), a member's transfer balance at a time is the sum of the credits in their transfer balance account less the sum of their debits.

Section 294-30 of the Income Tax (Transitional Provisions) Act 1997, this provides that a member does not have an excess transfer balance in the transitional period from 1 July 2017 to 31 December 2017 if:

  • the only transfer balance credits in the account in that period arose under item 1 of the table in subsection 294-25(1) of that Act (where a transfer balance credit arises where a member receives a retirement phase of a superannuation stream  just before 1 July 2017)
  • the sum of those transfer balance credits exceeds their transfer balance cap, but is less than or equal to $1,700,000, and
  • the transfer balance is reduced to or below the transfer balance cap within the transitional period.

The transitional provisions operate only to disregard a member's excess transfer balance for this six months period so that they do not have any excess transfer balance earnings and they are not liable for the excess transfer balance tax.

Take note, the transfer balance cap is subject to the proportional indexation  in line with increases in the general transfer balance cap. However, if a  transfer balance has ever equalled or exceeded a member's transfer balance cap at the end of a day, they will permanently lose their entitlement to increase their transfer balance cap by indexation in future years.

Excess transfer balance tax

Member's are liable to pay excess transfer balance tax if they have an excess transfer balance period. Under subsection 294-230(2), an excess transfer balance period is a continuous period of one or more days where they have an excess transfer balance at the end of the day.

This amount is calculated at the end of their excess transfer balance period and an assessment will be issued to the member for the period. A member may rectify their excess transfer balance at any time by instructing the superannuation income stream provider to commute a superannuation income stream in part or in full.

In determining the amount to commute, a member should take into account their original excess transfer balance, excess transfer balance earnings that will be credited to their transfer balance account and the time required for their superannuation provider to action a commutation.

Excess transfer balance earnings are calculated daily on their excess transfer balance and are credited daily to their transfer balance account until the Commissioner issues a determination or they no longer have excess transfer balance, whichever comes first. Credits for excess transfer balance earnings increases their excess transfer balance.

Though credits for excess transfer balance earnings cease to arise in a member's transfer balance account once the Commissioner has issued a determination, a member may still be liable to excess transfer balance tax in respect of excess transfer balance earnings that accrue in relation to any excess transfer balance that a member has after the determination has been issued.

Excess transfer balance determinations

The Commissioner will generally issue a member with an excess transfer balance determination at the end of the day. The Commissioner will issue a determination based on information that they hold about the member's transfer balance account (such as information reported to the Commissioner by superannuation income stream providers and transfer balance debits notified by the member).

As there may be delays in the reporting of information to the Commissioner, the determination may not be issued by the Commissioner until many months after the event.

A determination may not be issued if the member reduces their transfer balance to or below their transfer balance cap before a determination issued. If a determination is received this will stop credits for excess transfer balance earnings arising in their transfer balance account and increasing their excess transfer balance (from the date the determination is issued). However, if a credit arises in their transfer balance account after they receive a determination but before they transfer balance is reduced; excess transfer balance earnings will start to be credit to their transfer balance account gain from the date of the second credit.2

The excess transfer balance determination will state a member's 'crystallised reduction amount', which is their excess transfer balance including credits for excess transfer balance earnings to the date of the determination. This is the amount of the debit that needs to arise in their transfer balance account so that they are not in breach of their transfer balance cap.

The Commissioner has the right to amend or revoke an excess transfer balance determination at any time before a commutation authority is issued. For instance, when a determination is issued and the transfer balance subsequently changes before a commutation authority is issued, such as a member commences another pension. 2

Source: 1. Modified rules apply in determining excess transfer balance for individuals who are receiving capped defined benefit income streams and child recipients of death benefit income streams. Refer to LCR 2016/10 Superannuation reform: capped defined income streams - non-commutable, lifetime pensions and lifetime annuities and LCR 2017/1 Superannuation reform: capped defined benefit income streams - pensions or annuities paid from non-commutable, life expectancy or market-linked products and subdivision 294-E for further guidance on these rules. 2. LCR 2016/9-Superannuation reform: transfer balance cap.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Thursday, September 24, 2020