• Transfer balance cap

    The transfer balance cap applies from 1 July 2017. It is a new limit on the total amount of superannuation that can be transferred into the retirement phase. All your account balances will be included when working out this amount. It does not matter how many accounts you hold these balances in.

    You can continue to make multiple transfers into the retirement phase as long as you remain below the cap.

    The transfer balance cap will start at $1.6 million. It will be indexed periodically in $100,000 increments in line with CPI. The amount of indexation you will be entitled to will be calculated proportionally based on the amount of your available cap space. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.

    Find out about:

    See also:

    What counts towards your cap

    The cap limits the amount that you can transfer into retirement phase to start a pension or annuity over the course of your lifetime. All your retirement phase account balances count towards your cap, regardless of how many accounts you hold or how many times you transfer money into retirement phase. The cap also includes the value of pensions or annuities you may start to receive for some other reason, for example:

    • your spouse has died and you are receiving, or start to receive, a pension from their superannuation
    • your former spouse has been ordered to pay you a portion of their pension income stream as part of a family court settlement.

    The cap does not apply to any subsequent growth or losses. This means that:

    • if you start a pension with $1.6 million and the value of that pension grows to $1.7 million, you will not exceed your cap
    • if you start a pension with $1.6 million and the value of that pension decreases over time (for example, as you use it to live on or you suffer losses), you can’t 'top up' your pension accounts. You will still be able to access other superannuation amounts you may hold in accumulation phase by taking these as a 'lump sum'.

    A transition to retirement income stream (TRIS) will only count towards your transfer balance cap when it is in the retirement phase. A TRIS is in the retirement phase when the person receiving the TRIS reaches 65 years old or notifies their fund that they have met a specified nil cashing restriction condition of release, such as retirement, permanent incapacity or terminal illness.

    When calculating if you have exceeded your cap, we will subtract the value of any structured settlement contributions you've made. Special rules also apply to child death benefits beneficiaries.

    Calculating your personal transfer balance

    Each individual with superannuation interests in the retirement phase has a personal transfer balance cap. The cap cannot be shared with any other person. To determine your position with respect to the transfer balance cap, you have a transfer balance account. This tracks the net amounts you have transferred to the retirement phase.

    The transfer balance account works in a similar way to a bank account. Amounts you transfer to, or are otherwise entitled to receive, from the retirement phase give rise to a credit (increase) in your transfer balance account. Certain transfers out of the retirement phase give rise to a debit (decrease) in your transfer balance account.

    Although there is now a limit on the amount of assets you can transfer into a tax-free retirement phase account, this does not affect the amount of money that you can have in the accumulation phase of a superannuation fund. Any amount of superannuation you have in your fund above the $1.6 million amount can be retained in the accumulation phase and/or be taken as lump sum payments.

    The value of a superannuation income stream for an account-based pension will generally be the value of your pension account.

    Special rules for lifetime pensions and existing annuities

    You should contact your fund to determine the value of your pensions and annuities.

    Special rules apply to calculate the value of:

    • lifetime pensions
    • where the income stream existed on 30 June 2017, certain 
      • lifetime annuities
      • life expectancy pensions and annuities
      • market linked pensions and annuities.
       

    The 'special value' of these products is calculated on your annual entitlement.

    This is worked out by annualising the gross or pre-tax amount (including all components) of the first superannuation income stream benefit you are entitled to receive from the income stream.

    Lifetime pensions

    These are valued by multiplying the annual entitlement by a factor of 16. This provides a simple valuation rule based on general actuarial considerations.

    This means that a lifetime pension that pays $100,000 per annum will fully exhaust your transfer balance cap in the 2017–18 financial year. As you have exhausted your 'cap space', you will not be able to start or maintain any account based retirement phase income stream after 1 July 2017 without breaching your transfer balance cap. You will generally need to reduce the value of your account based pension to nil and pay excess transfer balance tax.

    Lifetime annuities

    Certain lifetime annuities being paid on or before 30 June 2017 are valued by multiplying the annual entitlement by a factor of 16 in the same manner as lifetime pensions.

    Certain life expectancy and market linked pensions

    Certain life expectancy and market linked pensions and annuities being paid on or before 30 June 2017 are valued by multiplying the annual entitlement by the number of years (rounded up to the next whole number) remaining on the term of the product.

    See also:

    • LCG 2016/10 Superannuation reform: defined benefit income streams – non-commutable, lifetime pensions and lifetime annuities

    How the cap will affect superannuation income streams

    Transfer balance cap rules apply to people receiving or planning to start a retirement phase income stream both before and after 1 July 2017. An explanation of the super changes and further information on what you need to do can be found here:

    The difference between the $1.6 million transfer balance cap and $1.6 million total superannuation balance

    The ‘transfer balance cap’ introduces a new limit on the amount you can transfer into retirement phase to support an income stream over the course of your lifetime. Amounts moving in and out of your retirement phase accounts will be recorded and tracked by the ATO in a transfer balance account that we maintain for you. You will be liable to pay excess transfer balance tax if your transfer balance account exceeds the cap limit.

    The ‘total superannuation balance’ has been introduced as part of a new test to determine an individual’s non-concessional contributions cap and bring forward period. Your total superannuation balance is essentially the total value of your accumulation and retirement phase interests (subject to modifications) and rollover amounts not yet included in those interests across all of your superannuation providers.

    Where an individual’s total superannuation balance is greater than or equal to the general transfer balance cap they will be deemed to be in excess of the non-concessional contributions cap on any non-concessional contributions they make after 1 July 2017. They will also not be entitled to a superannuation co-contributions payment.

    The transfer balance cap will be set at $1.6 million for the 2017–18 year. This means that you will need to comply with two separate $1.6 million limits from 1 July 2017:

    • the transfer balance cap limit on the value of the interest that supports your retirement phase income streams
    • your total superannuation balance in order to determine your non-concessional contributions cap.

    The general transfer balance cap is subject to indexation in $100,000 increments on an annual basis in line with the consumer price index. The total superannuation balance limit is equal to the general transfer balance cap.

    Will my transfer balance account and total superannuation balance be the same value?

    Your transfer balance account and total superannuation balance are calculated differently, therefore it is possible that you will have different balances under the two separate tests.

    Transfer balance account

    Your transfer balance account is calculated on amounts that you transfer into retirement phase to support a pension or annuity over the course of your lifetime.

    The transfer balance account works in a similar way to a bank account. Amounts you transfer to, or are otherwise entitled to receive, from the retirement phase give rise to a credit (increase) in you transfer balance account. Certain transfers out of the retirement phase give rise to a debit (decrease) in your transfer balance account. The total value of all of the credits and debits to your transfer balance account at the end of a financial year, will count towards the calculation of your total superannuation balance.

    The transfer balance account also includes the value of pensions or annuities you may start to receive for some other reason, for example:

    • you receive a death benefit pension
    • you receive a portion of a retirement income stream as part of a family court settlement.

    Total superannuation balance

    Your total superannuation balance will be calculated at the end of 30 June of the previous financial year in order to determine your current non-concessional contributions cap.

    At a particular time, an individual’s total superannuation balance is the sum of the following:

    • The accumulation phase value of their superannuation interests that are not in the retirement phase. This is the total amount of benefits that would become payable if the individual voluntarily ceased the interest at that time.
    • The retirement phase value of their superannuation interests. This is the balance of the individual’s transfer balance account, modified to reflect the value of account-based interests in the retirement phase at that time and disregarding certain debits.
    • The amount of each rollover superannuation benefit not already reflected in the accumulation phase value or the retirement phase value, reduced by the sum of any structured settlement contributions.

    Example:

    As of 1 April 2017, Fred is receiving an account-based pension valued at $2 million. On 28 June 2017, Fred commutes $500,000 from his pension and transfers it back into his superannuation accumulation account.

    On 18 August 2017, Fred makes $50,000 in voluntary non-concessional contributions to his fund.

    Fred has a personal transfer balance cap of $1.6 million for the 2017–18 year. Fred has a transfer balance account of $1.5 million, so is within his personal transfer balance cap.

    Fred’s total superannuation balance as of 30 June 2017 was $2 million ($500,000 in the accumulation phase of his superannuation fund and $1.5 million in his transfer balance account). As this exceeds the general transfer balance cap, his $50,000 contribution will be treated as excess non-concessional contributions.

    End of example

    See also:

    Exceeding the cap on or after 1 July 2017

    The transfer balance cap measure commences on 1 July 2017. This generally means if you have a retirement phase account balance in excess of the $1.6 million cap on or after this date you will need to:

    • remove any amount over $1.6 million, plus excess transfer balance earnings, from retirement phase
    • pay excess transfer balance tax.

    If you exceed the cap because you were receiving certain lifetime, life-expectancy or market linked pensions or annuities, you may not be able to commute these pensions or annuities to bring yourself under the cap. If this happens, the tax treatment of these income streams will change.

    Special transitional rules

    If, at 1 July 2017, the total value of your pre 1 July 2017 retirement phase income streams is between $1.6 million and $1.7 million you have six months to remove the excess capital without penalty.

    Find out about:

    Removing the excess capital and earnings

    If you exceed your transfer balance cap you will receive earnings made on the excess capital while you are in excess of the cap. Consequently, these earnings will need to be removed from retirement phase.

    The excess transfer balance earnings you will need to remove are notional earnings calculated at a rate based on the general interest charge, not the actual amount of earnings that may have accrued.

    For the purposes of calculating how much you will need to remove from retirement phase, excess transfer balance earnings accrue and compound daily until we send you a determination or, if you remove the excess capital and earnings before we send you a determination, the date you remove the total excess.

    Example

    On 1 August 2017 Andrew starts a pension worth $2 million. Andrew has an excess transfer balance of $400,000 as his personal transfer balance cap is $1.6 million. Assuming an earnings rate of 9.2%, after 30 days, excess transfer balance tax earnings of $3,036 will have accrued.

    End of example

    Where you exceed your cap and do not remove the excess capital and excess transfer balance earnings, we will issue you with an excess transfer balance determination. This will specify how much you will need to remove from retirement phase.

    The excess transfer balance determination will be accompanied by a default commutation notice which details:

    • the income stream provider we will ask to remove the excess capital and earnings from retirement phase
    • the superannuation income stream we will ask them to remove the excess from.

    If you receive an excess transfer balance determination, you can tell us in the approved form if you want the amount in the determination removed from a different income stream or streams. You must make the election within 60 days of the date when the determination was issued. Once made, the election is irrevocable and we will issue a commutation authority to your elected superannuation fund.

    If you do nothing, we will issue commutation authorities to your superannuation provider as set out in the default commutation notice.

    If you disagree with the determination you can lodge an objection.

    If a superannuation provider receives a commutation authority from us, they must reduce the identified income stream by the amount outlined in the authority within 60 days.

    If you do not have enough in that account to cover the full amount in the determination we will continue to issue commutation authorities to other funds until either:

    • the determination amount has been removed from retirement phase
    • you have no amounts left that can be removed from retirement phase.

    Excess transfer balance tax

    Once you have removed all the excess capital and excess transfer balance earnings from retirement phase, we will calculate the amount of excess transfer balance tax you will need to pay and send you an assessment.

    To calculate the tax you need to pay we will:

    • calculate your excess transfer balance earnings from the day you first exceed the cap to the date of rectification (when your balance is no longer in excess)
    • multiply your earnings by the excess transfer balance tax rate.

    The rate of excess transfer balance tax is 15% for any excess periods that start in the 2017–18 financial year. From 1 July 2018 the rate is 15% for a first year breach and then 30% for subsequent breaches.

    The assessment will issue to you and you are liable to pay the assessed tax amount, even if you have reduced your retirement phase income stream to below the cap before we issued a determination.

    Capped defined benefit income stream modifications

    The transfer balance cap rules apply differently to certain defined benefit income streams, known as ‘capped defined benefit income streams’. This is because amounts can't generally be removed from these income streams (this removal is known as commuting), so an individual may not be able to remove any ‘excess transfer balance’.

    There are two categories of superannuation income streams this may apply to:

    • certain lifetime pensions, regardless of when they started
    • where the income stream existed on 30 June 2017, certain 
      • lifetime annuities
      • life expectancy pensions and annuities
      • market-linked pensions and annuities.
       

    You will need to talk to your provider to determine if your income stream falls into one of these categories.

    The value of these income streams count towards your transfer balance cap from 1 July 2017.

    The defined benefit income cap will be $100,000 for the 2017–18 year and will be indexed in line with the general transfer balance cap.

    The defined benefit income cap will be reduced if:

    • you are receiving a pension and turn 60 years old part-way through the year, or start a pension for the first time part-way through a year
    • you are under 60 and receiving one of these income streams and start to receive a death benefit pension and your spouse was over 60.

    Instead of excess capped defined benefit income streams causing a breach of the transfer balance cap that needs to be remedied by removing the excess, modifications to the tax rules result in certain amounts being included in assessable income and adjustments to the availability of tax offsets.

    For a taxed source capped defined benefit income stream, half of the income stream above $100,000 will be included in your assessable income and taxed at your marginal tax rate.

    See also:

    Examples – capped defined benefit income stream modifications

    Example 1

    Frances is 62 years old and receives capped defined benefit income stream income of $160,000 from her funded defined benefit scheme. Her capped defined benefit income exceeds the cap by $60,000. Therefore she will need to include $30,000 in her assessable income.

    End of example

    For an untaxed source capped defined benefit income stream, your entitlement to the tax offset will be limited to the first $100,000 of your total capped defined benefit income streams.

    The untaxed source is the untaxed element of the taxable component of an income stream.

    Example 2

    Gordon is 65 years old and receives capped defined benefit income stream income of $140,000 from an untaxed source. The income stream is taxed at marginal rates, subject to a 10% offset. However, his offset entitlement of $14,000 is reduced by $4,000 to $10,000.

    End of example

    For a mix of taxed and untaxed income streams, the taxed portion is applied to the $100,000 cap before the untaxed portion.

    Example 3

    Alastair is 63 years old. On 1 July 2017, he is receiving a capped defined benefit income stream of $150,000 made of up of a tax-free component of $50,000 and an untaxed element of the taxable component of $100,000.

    The value of Alastair's capped defined benefit income stream for transfer balance cap purposes is $150,000 × 16 = $2.4 million.

    As the capped defined benefit income stream is his only source of income, he has exhausted his transfer balance cap but does not need to remove any excess from retirement phase.

    He has exceeded his defined benefit income cap of $100,000.

    The tax-free component of Alastair's capped defined benefit income stream is considered to have come from a 'taxed source'. As the $50,000 he receives does not exceed his defined benefit income cap he does not need to include it in his assessable income.

    Alastair includes the $100,000 of the untaxed element in his assessable income.

    End of example

    From 1 July 2017, superannuation providers who pay these types of income streams will have new withholding obligations. They will need to provide payment summaries to members.

    If you are already over the transfer balance cap due to a lifetime, life expectancy or market linked pensions or annuity income stream, you will need to reduce all of your account-based pensions or annuities to nil.

    Example 4

    Max started an account-based income stream when he turned 60 in 2016. The pension is valued at $900,000. Max then starts a defined benefit income stream of $150,000 per annum on 1 July 2017. The defined benefit income is entirely from a taxed source (that is, made up of a tax free component and a taxed element of the taxable component).

    The special value of Max's defined benefit income stream for transfer balance cap purposes is $2.4 million (annual entitlement of $150,000 × 16).

    Therefore his combined transfer balance account is currently $3.3 million.

    Max has exceeded his transfer balance cap by $1.7 million, but only $900,000 of this excess relates to an account-based income stream. As he has breached his cap due to two distinct types of income streams, they will be treated differently.

    Max has also exceeded his capped defined benefit income cap of $100,000.

    Treatment of excess relating to the account based pension

    Max’s transfer balance account exceeds his transfer balance cap with $900,000 of the amount relating to an account-based pension. He will need to remove $900,000 plus excess transfer balance tax earnings from retirement phase.

    The earnings will be calculated and added to the excess from the time he went into excess until the time the excess amount is removed or we issue a determination. If Max no longer has sufficient assets in his account based pension to remove the total excess amount, he will be required to reduce his account-based income stream to nil.

    Excess transfer balance tax will also apply.

    Max’s account-based income stream is still tax free.

    Treatment of capped defined benefit pension income in excess of the defined benefit income cap

    Max's pension income comes from a 'taxed source'. He will need to include 50% of his capped defined benefit pension income that is above his defined benefit income cap of $100,000 in his assessable income.

    As $50,000 of his defined benefit pension income is above his defined benefit income cap, Max will need to lodge an individual income tax return to include $25,000 in his assessable income. This may result in him having a tax liability for the financial year in question.

    End of example

    Death benefits

    If an individual has a superannuation interest when they die, the trustee of the superannuation fund will generally pay the deceased’s remaining superannuation interests (accumulation and retirement phase interests) as a death benefit lump sum to a beneficiary. This money is cashed-out of the superannuation system.

    The fund is allowed to pay a death benefit as a superannuation income stream (rather than a lump sum) if the beneficiary is a dependant of the deceased member.

    A dependant is a person who is either a:

    • spouse of the deceased
    • child of the deceased (less than 18 years old, financially dependent under 25 years old or has a permanent disability)
    • person who was in an interdependency relationship with the deceased.

    The value of a death benefit income stream paid to a dependant will be credited to the dependant’s transfer balance account. This value includes investment gains that accrued to the deceased’s superannuation interest between the time they died and when the death benefit income stream became payable to the beneficiary.

    A beneficiary will need to manage their affairs to ensure that a death benefit income stream does not result in exceeding their transfer balance cap. If a death benefit income stream, in combination with the individual’s own superannuation income stream, results in a beneficiary exceeding their transfer balance cap, they will need to decide which superannuation income stream to reduce.

    Importantly, a superannuation death benefit cannot be held as an accumulation interest. This contravenes the regulatory requirement to cash the benefit out of the system as soon as practicable.

    Example:

    On 17 August 2017, Harry commences a $500,000 superannuation income stream. Harry has a transfer balance of $500,000.

    Harry’s wife, Sally, dies on 30 November 2018, leaving superannuation interests of $288,000. On 15 July 2019, Sally’s superannuation fund advises Harry that he is the sole beneficiary.

    The superannuation fund cashes the death benefits (now worth $290,000) as a death benefit income stream to Harry from 1 August 2019. This increases Harry’s transfer balance account to $790,000 on that date, which is still below his transfer balance cap. Harry does not need to take any further action.

    End of example

    See also:

    Modifications for reversionary superannuation income streams

    Reversionary superannuation income streams are different from other death benefit income streams because they revert to the beneficiary immediately on the death of the member. If an individual receives a reversionary superannuation income stream, the value of the entire supporting superannuation interest at the time it becomes payable to the beneficiary counts towards their transfer balance cap.

    If you are the recipient of a reversionary pension, the income stream will not count as a credit in your transfer balance account until 12 months after the death of the member. This gives you time to adjust your affairs and reduce any amount of the income stream that may cause you to exceed your transfer balance cap.

    Example

    John has a reversionary pension worth $1.0 million at the time of his death on 1 August 2017. The pension reverts to John's wife, Barbara, and payments from the pension continue to be made to their joint bank account. Barbara already has her own pension and a transfer balance account with a balance to $800,000.

    In September 2017 Barbara is advised that she became the recipient of John's pension in August. Barbara is advised that, unless she acts, the combined value of the two pensions will cause her to exceed her transfer balance cap. Barbara has a number of options to respond to the situation. She can fully commute either pension or she can undertake a partial commutation of her pension for the potential excess of $200,000.

    On 1 December 2017 Barbara makes a partial commutation of $200,000 of her own pension. On that date a debit arises in her transfer balance, bringing her transfer balance down to $600,000.

    The $1 million credit in respect of the reversionary pension arises in Barbara's transfer balance account on 1 August 2018. Barbara has not exceeded her transfer balance cap.

    End of example

    Child death benefits

    A child recipient receiving superannuation death benefits from a parent is entitled to a modified transfer balance cap.

    A child recipient is a deceased person’s dependent child under 25 years old. A child between 18 and 25 must also be financially dependent on the deceased to qualify to receive a superannuation death benefit income stream. A deceased’s child is also a dependant if they have a permanent disability, regardless of their age.

    A child recipient is required to commute all their superannuation income streams and remove the capital from the superannuation system when they turn 25, unless they have a permanent disability. The child’s modified transfer balance account will cease when they commute all their superannuation income streams or when the capital is exhausted.

    Modified transfer balance cap

    Child recipients of a death benefit income stream from a deceased parent may have a modified transfer balance cap, rather than the general transfer balance cap ($1.6 million in 2017–18).

    The normal transfer balance rules apply, but the modified transfer balance cap depends on the deceased parent’s super interests and when the income stream commences.

    Guidance on how to calculate this modified transfer balance cap is contained in:

    Structured settlements

    A structured settlement is a payment for a personal injury you have suffered. A debit will arise in your transfer balance account for any structured settlement amount you receive and contribute towards your superannuation interest.

    The personal injury payment must be in the form of a structured settlement, an order for a personal injury payment or lump sum workers compensation payment. Two legally qualified medical practitioners must certify that, as a result of the injury, you are unlikely to ever be able to be gainfully employed in a capacity for which you are reasonably qualified.

    For a debit to arise in your transfer balance account, the structured settlement contribution must be made to a superannuation fund within 90 days of being received, or the structured settlement order coming into effect, whichever is later. You must notify your superannuation provider that the contribution is being made under this exemption before, or when, making the contribution to enable them to treat it appropriately and report it correctly to the ATO.

    Your superannuation provider reports your contributions annually to us where this amount will be excluded from the non-concessional contributions cap and subtracted from your transfer balance cap. Slightly different rules apply to structured settlements received before 10 May 2006. These rules remove the requirement that you make the contribution within 90 days and the requirement that you notify your superannuation provider. This reflects that it was not necessary to comply with these requirements before the start of the excess non-concessional contributions regime.

    Debits where structured settlement contributions made before 1 July 2017

    A debit arises in your transfer balance account when you make the contribution of the structured settlement amount or at the time that you first have a transfer balance account, whichever is later.

    Special rules apply to ensure that where your transfer balance account is first credited on 1 July 2017, the debit for a structured settlement contribution you have made will cover all of your transfer balance credits.

    This ensures the debit will cover any investment growth that had occurred on the structured settlement contributions in the period between:

    • the contributions being made; and
    • the transfer balance account credit arising on 1 July 2017 (commencement of transfer balance cap measures).

    The special rules apply if the sum of all of your transfer balance credits on 1 July 2017 is greater than the structured settlement contribution.

    In this case, the amount of the transfer balance debit is instead equal to the sum of all of your credits. This means these your transfer balance account will not be greater than nil on 1 July 2017.

    Example

    On 13 January 2012, Michiel, 29, is seriously injured in a workplace accident. He undertakes legal proceedings and is awarded a court ordered structured settlement of $5 million due to the severity of his injuries.

    Michiel contributes the $5 million into his superannuation fund, notifying the fund that this is a structured settlement contribution. On 1 May 2017 he commences a superannuation income stream with this amount.

    Due to investment growth since the contribution was made, on 1 July 2017 the income stream is now worth $5.2 million.

    On 1 July 2017, Michiel starts to have a transfer balance account and receives a credit of $5.2 million. On the same day, he also receives an adjusted debit of $5.2 million, to ensure his structured settlement debits are equal to the sum of his credits.

    This means that Michiel has a transfer balance account of nil and is entitled to start another pension worth up to $1.6 million without breaching his transfer balance cap.

    End of example

    Debits where structured settlement contributions made after 1 July 2017

    A debit arises in your transfer balance account when you make the contribution of the structured settlement amount or at the time that you first have a transfer balance account, whichever is later. The debit that arises is the value of the contribution.

    Example:

    On 13 November 2018, Alice, 42, is seriously injured in a car accident. She undertakes legal proceedings against the driver and is awarded a court ordered structured settlement of $4 million due to the severity of her injuries.

    Alice contributes the $4 million into her superannuation fund and immediately commences a superannuation income stream with the amount, notifying the fund that this is a structured settlement contribution. A credit and a debit of $4 million arise in her transfer balance account on the same day. Alice’s transfer balance account is now nil. Alice is entitled to start another pension worth up to $1.6 million without breaching her transfer balance cap.

    Alice never had an excess transfer balance because she determines her balance at the end of a day. Similarly, her transfer balance cap is subject to full indexation in the future.

    End of example

    Payment splits

    There are circumstances where, following a divorce or other relationship breakdown, superannuation interests may be split as part of the division of property. Under Part VIIIB of the Family Law Act 1975, this may occur as a result of a court order or the agreement of the parties. Most commonly, one party (the member spouse) will be required to provide a proportion of their superannuation interests to the other party (the non-member spouse).

    Family law payment splits from prior to you commencing a superannuation income stream will not affect your transfer balance account as the division occurred before the interest entered the retirement phase.

    For an explanation of how a family law payment split may affect your transfer balance cap, refer to:

    Fraud and bankruptcy

    There are a limited number of events that may result in an individual losing some or all of the value in their superannuation interests. These include fraud and void transactions under the Bankruptcy Act 1966. In these specific circumstances, an affected individual is able to notify us of the event and receive a debit in their transfer balance account. There is no time limit to notify us.

    Fraud

    Though uncommon, sometimes superannuation is the target of fraudulent or dishonest activities that can result in losses suffered by the superannuation provider. In these cases, an individual can receive a debit in their transfer balance account where all of the following apply:

    • the individual's income stream has been reduced due to a loss suffered by the superannuation provider as a result of fraud or dishonesty
    • the offender is convicted
    • the individual has notified us.

    The debit in their transfer balance account will equal the value of the reduction.

    Bankruptcy and void transactions

    Generally, superannuation interests cannot form part of a bankrupt estate. However, there are very specific circumstances where some superannuation contributions can form part of the bankrupt estate and are made available to the trustee in bankruptcy.

    This is only where out-of-character contributions were made to superannuation with the intent to defeat creditors or to stop the amount becoming part of the bankrupt estate. In these circumstances, the contributions may be required to be transferred out of superannuation to the bankrupt estate.

    Where the superannuation interest that supports an individual’s superannuation income stream is reduced because of payments required to comply with the Bankruptcy Act 1966, the individual is able to notify us and receive a debit in their transfer balance account to the value of the reduction.

    Updating your transfer balance account

    Retirement phase income stream providers will have new reporting requirements associated with the transfer balance cap. The new reporting requirements will be event based, not annual reporting – that is, providers will need to report every time there is a change to a member's retirement phase interests.

    Income stream providers will need to report directly to us when:

    • a retirement phase superannuation income stream commences, including the associated value of the income stream
    • an amount in a retirement phase account is commuted
    • a death benefit income stream commences including the recipient and the amount of the income stream
    • the amount of any structured settlements received after 1 July 2017
    • they are unable to comply with a commutation authority.

    From this information we will update your transfer balance account. If you are concerned that your transfer balance account isn't correct, contact your income stream provider to check.

    A paper Transfer balance event notification (TBEN) form, is being developed if you need to report an event to us directly. This form will be available from October 2017.

    Typically you will only need to use this form if you or a relevant party (for example, a previous spouse) are a retirement phase recipient and one of the following events has occurred:

    • family law payment split
    • debit event from fraud, dishonesty or bankruptcy 
    • structured settlement contribution was made before 1 July 2007.

    Information for superannuation income stream providers

    Capital gains tax relief

    Capital gains tax (CGT) relief is provided under transitional provisions. Under the new measure, complying superannuation funds are able to reset the cost base of assets to their market value where those assets are reallocated or re-apportioned from the retirement phase to the accumulation phase prior to 1 July 2017, in order to comply with the transfer balance cap or new transition to retirement income stream arrangements.

    Where the assets are already partially supporting an interest in the accumulation phase, tax will be paid on this proportion of the capital gain made to 1 July 2017. This capital gain may be deferred until the asset is sold.

    CGT relief is subject to different conditions depending on whether the superannuation provider segregates assets to support its current pension liabilities or whether it applies the proportionate method. The following conditions apply to both methods:

    • The relief applies to reallocation or re-proportioning made between 9 November 2016 and 30 June 2017 in relation to assets a complying superannuation provider held through that period.

    Choosing and reporting CGT relief

    A superannuation fund must choose to apply the relief if they wish to do so. The superannuation fund must make this choice and notify us in the approved form on or before the day the trustee is required to lodge the fund’s 2016–17 income tax return. A choice to apply the relief cannot be revoked.

    In order to make a valid CGT relief choice, superannuation funds will need to complete the 2017 CGT Schedule and report:

    • that they have chosen for the CGT relief to apply
    • the amount of capital gains to be deferred to a later year (if applicable).

    See also:

    Reporting

    Retirement phase income stream providers will have new reporting requirements associated with the transfer balance cap. The new reporting requirements will be event based, not annual reporting – that is, providers will need to report every time there is a change to a member's retirement phase interests.

    Income stream providers will need to report directly to us when:

    • a retirement phase superannuation income stream commences, including the associated value of the income stream
    • an amount in a retirement phase account is commuted voluntarily or because of a commutation authority
    • a death benefit income stream commences including the recipient and the amount of the income stream
    • the amount of any structured settlement (personal injury) contributions received after 1 July 2017
    • they are unable to comply with a commutation authority because of a capped defined benefit income stream or because the member is deceased
    • certain limited recourse borrowing arrangement repayments
    • an income stream stops being in the retirement phase.

    We are developing an online reporting channel for single lodgment and a paper form. We will continue to publish updates on the reporting framework as they develop.

    See also:

    Capped defined benefit income streams – withholding

    Different treatment applies to Capped defined benefit income streams.

    Where these income streams are paid to an individual 60 years or over (or death benefit recipient where the deceased was aged over 60), the amount of the income stream above $100,000 per year will receive different tax treatment.

    In order to apply these new taxation treatments, from 1 July 2017, superannuation providers who pay a capped defined benefit income stream will have new withholding obligations and will need to provide payment summaries to members.

    See also:

    Commutation authorities

    The ATO may issue superannuation income stream providers with a commutation authority where a member exceeds their transfer balance cap.

    The commutation authority will state the:

    • member's name
    • member's account number
    • amount to be commuted.

    Within 60 days of the date of the commutation authority, the income stream provider must:

    • commute the nominated amount, or maximum commutable amount from that income stream
    • notify us of either 
      • the commutation
      • that they are unable to comply (for example, if the member has died or the account is a capped defined benefit income stream).
       

    If the provider fails to comply with the commutation authority, they may lose the ability to claim exempt current pension income for this income stream.

    Last modified: 18 Aug 2017QC 50880