Transfer balance cap
Indexation of the general transfer balance cap
9.1 Indexation of the general transfer balance cap (GTBC)
The general transfer balance cap (GTBC) limits the amount a member can move into a retirement phase pension. Any amounts exceeding the cap will need to be moved out of retirement phase and may potentially trigger liability for additional tax.
Transfer balance cap
The transfer balance cap commenced on 1 July 2017 and was set at $1.6m. The cap is indexed at the Consumer Price Index (CPI) each year and rounded down to the nearest $100,000.
|Year||Transfer balance cap|
|2017/18 to 2020/21||$1,600,000|
|From 1 July 2021||$1,700,000|
Indexation of the general transfer balance cap
From 1 July 2017, the transfer balance cap will be indexed to $1.7 million and there will no longer be a single cap applying to all members. Members will have their own personal transfer balance cap (PTBC) in the range of $1.6 million to $1.7 million, depending on their personal circumstances.
If a member has a transfer balance account before the 1 July 2021 indexation, their personal transfer balance cap will be:
- $1.6 million at any time between 1 July 2017 and indexation occurring on 1 July 2021
- between $1.6 million and $1.7 million in all other cases, based on the highest ever balance of a member's transfer balance account.
The indexation of the general transfer balance cap may impact other caps and limits:
- ability to make non-concessional contributions
- ability to use the bring-forward provisions for non-concessional contributions
- eligibility for the co-contribution
- eligibility for the tax offset for spouse contributions
- the defined benefit income cap (indexed to $106,250 from 1 July 2021)
How to calculate the proportionate increase in a member's personal transfer balance cap (PTBC).
The proportionally indexed transfer balance cap is calculated by the process in section 294-40 of the Income Tax Assessment Act 1997.
|Dave started his first retirement phase income stream on 1 January 2020 with $1.3 million (assume no other transactions).|
|The general transfer balance cap at the time Dave commenced his pension was:||1,600,000|
|Determine Dave's highest ever balance in his transfer balance account (TBA):||1,300,000|
|Use the highest ever balance to calculate the proportion of the cap Dave has used,
as a percentage:
|1,300,000/1,600,000 = 0.8125|
|Round down to the nearest whole number:||81%|
|Determine the 'unused cap percentage' of the TBA:||19%|
|Multiply the unused cap percentage by the indexation increase of 100,000||19,000|
|Add the dollar figure to the original PTBC to get Dave's new PTBC:||1,619,000|
|Jenny started her first retirement phase income stream on 1 January 2020 with $1.6 million. Six months later, Jenny decided to take a partial commutation of $500,000. This would leave her current TBA balance at $800,000.|
|1 January 2020||Pension commencement||1,600,000||1,600,000|
|1 July 2020||Pension commutation||500,000||1,100,000|
What will happen to Jenny's personal transfer balance cap when indexation commences on 1 July 2021?
For Jenny, there is no indexation available to her PTBC, as she has already commenced a pension using 100% of her available cap at that time. While Jenny has no future entitlement to indexation, she is entitled to commence a further pension to bring her TBA back up to her cap, but it will not be indexed.
The tables below show how a member will be affected by indexation of the general transfer balance cap in various circumstance:
|How members will be affected by indexation on 1 July 2021|
|a member starts their first retirement phase income stream on or after 1 July 2021||their personal transfer balance cap will be $1.7 million|
|a member started a retirement phase income stream before 1 July 2021||their personal transfer balance cap may increase, unless, between 1 July 2017 and 1 July 2021, the balance in their transfer balance account was $1.6 million or more|
|a member was a child death benefit beneficiary before indexation, and they only receive a child death benefit income stream||their child death benefit transfer balance cap increment will not change.
If they also receive another retirement phase income stream, their personal transfer balance cap may increase
|a member will be receiving income from a capped defined benefit income stream and:
||the money their fund withholds from their income stream may change.
The defined benefit income cap will increase to $106,250 for most individuals.
They may need to review the amounts from these income streams that they include in their income tax return.
The maximum amount of the 10% pension tax offset they may be able to claim will increase.
|they make a non-concessional contribution to their super on or after 1 July 2017 and they have a superannuation balance of $1.7 million or more on 30 June 2021||they will exceed their non-concessional contributions cap|
|they want to receive a government co-contribution after contributing to their fund on or after 1 July 2021, and they have a superannuation balance of less than $1.7 million on 30 June 2021||they can do so if they meet all requirements.
The limit to receive a co-contribution will increase from $1.6 to $1.7 million.
|they want to claim the spouse tax offset for super contributions and their spouse has a superannuation balance of less than $1.7 million on 30 June 2021||they can do so if they meet all requirements.
The spouse total superannuation balance limit will increase from $1.6 to $1.7 million.
|Proportional indexation of the personal transfer balance cap|
|A member's highest transfer balance was between:||A member's unused cap percentage will be between:||A member's personal transfer balance cap will increase between:||A member's personal transfer balance cap after indexation will be between:|
|0.00 and 159,999.99||100% and 91%||100,000 and 91,000||1,700,000 and 1,691,000|
|160,000 and 319,999.99||90% and 81%||90,000 and 81,000||1,690,000 and 1,681,000|
|320,000 and 479,999.99||80% and 71%||80,000 and 71,000||1,680,000 and 1,671,000|
|480,000 and 639,999.99||70% and 61%||70,000 and 61,000||1,670,000 and 1,661,000|
|640,000 and 799,999.99||60% and 51%||60,000 and 51,000||1,660,000 and 1,651,000|
|800,000 and 959,999.99||50% and 41%||50,000 and 41,000||1,650,000 and 1,641,000|
|960,000 and 1,119,999.99||40% and 31%||40,000 and 31,000||1,640,000 and 1,631,000|
|1,120,000 and 1,279,999.99||30% and 21%||30,000 and 21,000||1,630,000 and 1,621,000|
|1,280,000 and 1,439,999.99||20% and 11%||20,000 and 11,000||1,620,000 and 1,611,000|
|1,440,000 and 1,599,99.99||10% and 1%||10,000 and 1,000||1,610,000 and 1,601,000|
|1,600,000 or more||0%||nil||1,600,000|
This technical resource is intended for the use of financial advisers only. It is current as of 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, May 6, 2021