Transfer balance cap
What is the cap?
There is a cap on the amount a member can move into a retirement phase pension - called the transfer balance cap. Any amounts exceeding the cap will need to move out of the retirement phase and potentially liable for additional tax as a result of exceeding the cap.
Transfer balance cap?
The transfer balance cap for 2019-20 and 2020-21 is $1.6m. It is indexed at the Consumer Price Index each year and rounded down to the nearest $100,000.
Note: Indexation of the general transfer balance cap from $1.6m to 1.7m will occur on 1 July 2021 if the All Groups CPI figure for the December 2020 quarter is 116.9 or higher.
Indexation of the general transfer balance cap
Once the transfer balance cap is indexed to $1.7m there will not be a single cap applying to all members. Members will have their own personal balance cap, in the range from $1.6 to 1.7m depending on a members circumstances.
If a member has a transfer balance account before indexation, their personal transfer balance cap will be:
- Any time between 1 July 2017 and indexation occurring, the transfer balance cap is $1.6m
- In all other cases the transfer balance cap between $1.6m and $1.7m based on the highest ever balance of their transfer balance account.
Take note that the indexation of the general transfer balance cap may change other caps and limits such as:
- non-concessional contributions
- spouse contributions and claiming a tax offset
Table 1: How a member will be affected when the general transfer balance cap is indexed (from the ATO)
|A member start their first retirement phase income stream on or after indexation.||A member's personal transfer balance cap will be $1.7 million|
|A member commenced a retirement phase income stream before indexation||A member's personal transfer balance cap may increase by a small amount, unless at any time between 1 July 2017 and indexation, the balance in their transfer balance account was $1.6 million or more.|
|A member received a child death benefit before indexation||A member only receives a child death benefit income stream their child death benefit transfer balance cap increment will not change. If a member receives another retirement phase income stream their personal transfer balance cap may increase by a small amount.|
|A member receiving income stream from a capped defined benefit income stream and;
||The amount of money a fund withholds from a member's income stream may change. The defined benefit income cap will increase to $106,250 for most people and they may need to review the amount of income from these income streams that they include in their income tax return.
The maximum amount of the 10% pension tax offset may be able to claim will increase.
|A member makes a non-concessional contribution to their super on or after 1 July 2017 and they have a total superannuation balance of $1.7 million or more on 30 June just before indexation||A member will exceed their non-concessional contributions cap.|
|A member wants to receive a government co-contribution to their super on or after 1 July 2017 and they have a total superannuation balance of $1.7 million or more on 30 June just before indexation.||A member may receive the co-contribution as long they meet all the other requirements because the limit to receive a co-contribution will increase from $1.6 to $1.7 million.|
|To claim the spouse tax offset for super contributions and their spouse has a total superannuation balance of less than $1.7 million on 30 June just before indexation.||A member will be able to do so if they meet all the other requirements because the spouse total superannuation balance limit will increase from $1.6 to 1.7 million|
Table 2 - Proportional indexation of a member's transfer balance cap
|Member's highest ever transfer balance was between||Member's unused cap percentage will be between||Member's personal transfer balance cap will increase between||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|
|$160,000.00 and $319,999.99||90% and 81%||$90,000 and $81,000||$1,690,000 and $1,681,000|
|$320,000.00 and $479,999,99||80% and 71%||$80,000 and $71,000||$1,680,000 and $1,671,000|
|$480,000.00 and $639,999.99||70% and 61%||$70,000 and $61,000||$1,670,000 and $1,661,000|
|$640,000.00 and $799,999.99||60% and 51%||$60,000 and $51,000||$1,660,000 and $1,651,000|
|$800,000.00 and $959,999.99||50% and 41%||$50,000 and $41,000||$1,650,000 and $1,641,000|
|$960,000.00 and $1,119,999.99||40% and 31%||$40,000 and $31,000||$1,640,000 and $1,631,000|
|$1,120,000.00 and $1,279,999.99||30% and 21%||$30,000 and $21,000||$1,630,000 and $1,621,000|
|$1,280,000.00 and $1,439,999.99||20% and 11%||$20,000 and $11,000||$1,620,000 and $1,611,000|
|$1,440,000.00 and $1,599,999.99||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|
|Example: David's transfer balance cap
David commenced a retirement phase income stream with a value of $1.2 million on 1 October 2018. There are no other events in David's transfer balance accounts, so the transfer balance account is $1.2 million.
David's unused cap percentage is 25% of $1.6 million and his personal transfer balance cap will by indexed by 25% of $100,000. Therefore, David's personal transfer balance cap after indexation is $1.625 million.
|Example: Nola's transfer balance cap
Nola commenced a retirement phase income stream on 1 October 2017 with a value of $800,000. On 13 May 2019, Nola commuted $200,000 from her pension and her transfer balance account was debited by $200,000. Although the balance of her transfer balance account when indexation occurs is $600,000, the highest ever balance of her transfer balance account is $800,000.
Nola's unused cap percentage is 50% of $1.6 million and her personal transfer balance cap will be indexed by 50% of $100,000. Therefore, Nola's personal transfer balance cap after indexation is $1.65 million.
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: Wednesday, September 23, 2020