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  • Indexation of the general transfer balance cap

    The general transfer balance cap is currently $1.6 million and all individuals have a personal transfer balance cap of $1.6 million.

    When the general transfer balance cap is indexed to $1.7 million there will be no single cap that applies to all individuals. Every individual will have their own personal transfer balance cap, somewhere between $1.6 and $1.7 million, depending on their circumstances.

    If you start a retirement phase income stream for the first time after indexation occurs, you will have a personal transfer balance cap of $1.7 million.

    If you had a transfer balance account before indexation occurs, your personal transfer balance cap will be:

    • $1.6 million if, any at time between 1 July 2017 and indexation occurring, the balance of that account was $1.6 million or more
    • between $1.6 and $1.7 million in all other cases, based on the highest ever balance of your transfer balance account.

    Indexation of the general transfer balance cap may also change other caps and limits that apply to you, if you:

    • make non-concessional contributions to your super
    • make a non-concessional contribution to your super and may be eligible for a co-contribution
    • make a concessional contribution to super on behalf of your spouse and want to claim a tax offset for that contribution.

    Indexation of the general transfer balance cap from $1.6 to $1.7 million will occur on 1 July 2020 if the All Groups CPI figure for the December 2019 quarter is 116.9 or higher. If indexation does not occur on 1 July 2020, we anticipate it will occur on 1 July 2021.

    Find out about:

    Summary of changes

    The table below is a summary of how you will be affected when the general transfer balance cap is indexed.

    Table 1: How you will be affected when the general transfer balance cap is indexed

    If

    Then

    You start your first retirement phase income stream on or after indexation.

    Your personal transfer balance cap will be $1.7 million.

    You commenced a retirement phase income stream before indexation.

    Your personal transfer balance cap may increase by a small amount, unless at any time between 1 July 2017 and indexation, the balance in your transfer balance account was $1.6 million or more.

    See: Transfer balance cap changes

    You were a child death benefit beneficiary before indexation.

    If you only receive a child death benefit income stream your child death benefit transfer balance cap increment will not change.

    If you also receive another retirement phase income stream your personal transfer balance cap may increase by a small amount.

    See: Changes affecting child death benefit income streams

    You will be receiving income from a capped defined benefit income stream and:

    • you are 60 years or over, or
    • the income stream is a death benefit income stream and the member was over 60 at the time of death.
     

    The amount of money your fund withholds from your income stream may change.

    The defined benefit income cap will increase to $106,250 for most people and you may need to review the amount of income from these income streams that you include in your income tax return.

    The maximum amount of the 10% pension tax offset you may be able to claim will increase.

    See: Changes affecting capped defined benefit income streams

    You make a non-concessional contribution to your super on or after 1 July 2017 and you have a total superannuation balance of $1.7 million or more on 30 June just before indexation.

    You will exceed your non-concessional contributions cap.

    See: Non-concessional contributions cap changes

    You want to receive a government co-contribution after making a contribution to your fund on or after indexation and you have a total superannuation balance of less than $1.7 million on 30 June just before indexation.

    You will be able to do so if you meet all the other requirements because the limit to receive a co-contribution will increase from $1.6 to $1.7 million.

    See: Co-contribution changes

    You want to claim the spouse tax offset for super contributions and your spouse has a total superannuation balance of less than $1.7 million on 30 June just before indexation.

    You will be able to do so if you meet all the other requirements because the spouse total superannuation balance limit will increase from $1.6 to $1.7 million.

    See: Spouse tax offset changes

    Transfer balance cap changes

    How indexation of the general transfer balance cap will affect you will depend on:

    • whether you had a transfer balance account before indexation occurs
    • if you had a transfer balance account prior to indexation occurring and, at any time between 1 July 2017 and indexation, the balance of your account was $1.6 million or more
    • if you had a transfer balance account prior to indexation occurring and the highest ever balance of your transfer balance account between 1 July 2017 and indexation was never $1.6 million or more.

    The ATO will calculate your entitlement to indexation and your personal transfer balance cap after indexation, based on the information reported to and processed by us when indexation occurs.

    If your fund later reports information to us that affects the highest ever balance of your transfer balance cap prior to indexation, we will re-calculate your entitlement to indexation and apply your new personal transfer balance cap to your affairs.

    In ATO Online services for individuals, you can see the highest ever balance of your transfer balance account and whether your personal transfer balance cap will be proportionally indexed.

    Special rules apply to child death benefit income stream recipients.

    If you start your transfer balance account after indexation

    Individuals who commence their first retirement phase income stream on or after indexation will have a personal transfer balance cap of $1.7 million.

    Example: Starting a transfer balance account for the first time after indexation

    Graham starts his first retirement phase income stream after the general transfer balance cap is indexed and his personal transfer balance cap is $1.7 million.

    End of example

    If you had a transfer balance account before indexation

    If you had a transfer balance account before indexation occurs, your personal transfer balance cap will remain at $1.6 million if, at any time between 1 July 2017 and indexation occurring, the balance of your transfer balance account was $1.6 million or more. This applies even if the balance of your transfer balance account is less than $1.6 million when indexation occurs.

    Examples 1 to 3 show how this applies for different scenarios.

    Example 1: Exceeded transfer balance cap before indexation

    Meisha exceeded her transfer balance cap on 1 July 2017 by $4,000 and commuted the excess before 31 December 2017 under the transitional rules and did not have to pay excess transfer balance tax. Just before indexation, the balance of her transfer balance account is $1.6 million. Meisha is not entitled to indexation and her personal transfer balance cap remains at $1.6 million.

    End of example

     

    Example 2: Highest ever balance of $1.6 million before indexation

    Maryanne started a pension in her self-managed super fund (SMSF) valued at $1.6 million on 1 December 2017. On 1 July 2018, she commuted $400,000 and the value of her transfer balance account just before indexation is $1.2 million. Maryanne is not entitled to indexation and her personal transfer balance cap remains at $1.6 million. She will continue to have cap space available to start a new retirement phase income stream to the value of $400,000.

    End of example

     

    Example 3: Highest ever balance of $1.6 million before indexation

    Matthew started a pension in his SMSF valued at $1.6 million on 1 July 2017. Since then, Matthew has been taking all payments from his pension in excess of the minimum pension payments as lump sum commutations. Just before indexation the balance of his transfer balance account is $1.2 million.

    Matthew will not be entitled to proportional indexation of his personal transfer balance cap. He will continue to have cap space available to start a new retirement phase income stream to the value of $400,000.

    End of example

    If you have never used the full amount of your transfer balance cap, your personal transfer balance cap will be proportionally indexed based on your highest ever cap balance.

    The proportional indexation of your personal transfer balance cap is calculated by:

    • identifying the highest ever balance in your transfer balance account
    • using that to calculate the unused cap percentage of your transfer balance account
    • multiplying your unused cap percentage by $100,000.

    This is explained further in the table below and the examples that follow.

    Table 2: Proportional indexation of your transfer balance cap

    If your highest ever transfer balance was between

    your unused cap percentage will be between

    your personal transfer balance cap will increase between

    your 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 $1,599,99.99

    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

     

    Example

    Nina commenced a retirement phase income stream with a value of $1.2 million on 1 October 2018. There are no other events in Nina’s transfer balance account, so the highest ever balance in her transfer balance account is $1.2 million.

    Nina’s unused cap percentage is 25% of $1.6 million.

    Nina’s personal transfer balance cap will by indexed by 25% of $100,000.

    Nina’s personal transfer balance cap after indexation is $1.625 million.

    End of example

     

    Example

    Leanne commenced a retirement phase income stream on 1 October 2017 with a value of $800,000. On 13 May 2019, Leanne 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.

    Leanne’s unused cap percentage is 50% of $1.6 million.

    Leanne’s personal transfer balance cap will be indexed by 50% of $100,000.

    Leanne’s personal transfer balance cap after indexation is $1.65 million.

    End of example

    Changes affecting child death benefit income streams

    If you only receive a child death benefit income stream, your transfer balance cap increment will not change when the general transfer balance cap is indexed.

    If you receive a child death benefit income stream and other retirement phase income streams, your:

    • cap increment for the child death benefit income stream will not change
    • personal transfer balance cap for your other income streams may be indexed.

    Example: If you receive a child death benefit income stream

    Kane is a child death benefit beneficiary and is receiving another income stream. Just before indexation, Kane’s child death benefit cap increment is $17,082. Kane also has a credit in his transfer balance account of $1.28 million.

    When indexation of the general transfer balance cap occurs, Kane’s child cap increment will remain at $17,982 and his personal transfer balance cap will be indexed.

    Kane’s unused cap percentage is 30% of $1.6 million.

    Kane's personal transfer balance cap will be indexed by 30% of $100,000.

    Kane’s personal transfer balance cap after indexation is $1.63 million.

    End of example

    Changes affecting capped defined benefit income streams

    When the general transfer balance cap is indexed, the defined benefit income cap, currently $100,000 for most people, will be indexed to $106,250.

    You may notice a change in the amount your fund withholds from your pension or annuity if you receive income from a capped defined benefit income stream and:

    • you are 60 years or over, or
    • under 60 where the capped defined benefit income stream is a death benefit income stream and the member was over 60 at the time of death.

    If the capped defined benefit income stream you receive has an untaxed element, the maximum amount of the 10% pension offset you may be able to claim will increase from $10,000 to $10,625.

    Non-concessional contributions cap changes

    The total superannuation balance limit which determines if an individual has a non-concessional contributions cap of nil will increase from $1.6 to $1.7 million.

    When the general transfer balance cap is indexed on 1 July, individuals with a total superannuation balance of $1.7 million or more as at the 30 June just before indexation will have a non-concessional cap of nil from 1 July.

    The total superannuation balance limit, which determines if an individual is entitled to use the non-concessional bring forward arrangements, will increase from $1.6 to $1.7 million.

    When the general transfer balance cap is indexed on 1 July, individuals with a total superannuation balance of $1.7 million or more as at the 30 June just before indexation will not be eligible for the bring forward arrangements from 1 July.

    See also:

    Co-contribution changes

    The limit that determines if an individual is entitled to a co-contribution will increase to $1.7 million when indexation of the transfer balance cap occurs.

    When the general transfer balance cap is indexed on 1 July, individuals with a total superannuation balance of less than $1.7 million as at the 30 June just before indexation will be entitled to a co-contribution from 1 July.

    See also:

    Spouse tax offset changes

    The limit which prohibits an individual from claiming the tax offset for superannuation contributions they make on behalf of their spouse will rise from $1.6 to $1.7 million.

    When the general transfer balance cap is indexed on 1 July individuals will be able to claim a deduction for contributions they make on or after 1 July on behalf of their spouse provided the spouse does not have a total superannuation balance of $1.7 million or more as at the 30 June just before indexation.

    See also:

    • Super-related tax offsets
    • LCR 2016/9 Superannuation reform: transfer balance cap
    • LCR 2016/10 Superannuation reform: capped defined benefit income streams – non-commutable, lifetime pensions and lifetime annuities
    • LCR 2017/1 Superannuation reform: capped defined benefit income streams – pensions or annuities paid from non-commutable, life expectancy or market-linked products
      Last modified: 18 Nov 2019QC 60627