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  • Indexation of the general transfer balance cap

    The general transfer balance cap is currently $1.6 million. From 1 July 2021, it will be indexed to $1.7 million.

    When the general transfer balance cap is indexed to $1.7 million, there won't be a single cap that applies to all individuals. Every individual will have their own personal transfer balance cap of between $1.6 and $1.7 million, depending on their circumstances.

    If you start a retirement phase income stream for the first time on or after 1 July 2021, you will have a personal transfer balance cap of $1.7 million.

    If you had a transfer balance account before 1 July 2021, your personal transfer balance cap will be:

    • $1.6 million if, at any time between 1 July 2017 and 30 June 2021, 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.

    You can view all transfer balance cap information in ATO online.

    Before 1 July 2021, you can see your highest ever balance in your transfer balance account. You can also see if your personal transfer balance cap will be proportionally indexed.

    From July 2021, you will be able to see your personal transfer balance cap in ATO online. This will be the only place you can see your personal transfer balance cap if you had a transfer balance account before 1 July 2021.

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

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

    On this page:

    Summary of changes

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

    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 1 July 2021.

    Your personal transfer balance cap will be $1.7 million.

    You started a retirement phase income stream before 1 July 2021.

    Your personal transfer balance cap may increase slightly, unless between 1 July 2017 and 1 July 2021, 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 and you only receive a child death benefit income stream.

    Your child death benefit transfer balance cap increment won't change.

    If you also receive another retirement phase income stream your personal transfer balance cap may increase slightly.

    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
    • the income stream is a death benefit and the member was over 60 at time of death.

     

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

    The defined benefit income cap will increase to $106,250 for most individuals.

    You may need to review the amounts 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 superannuation balance of $1.7 million or more on 30 June 2021.

    You will exceed your non-concessional contributions cap.

    See: Non-concessional contributions cap changes

    You want to receive a government co-contribution after contributing to your fund on or after 1 July 2021, and you have a superannuation balance of less than $1.7 million on 30 June 2021.

    You can if you meet all requirements.

    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 superannuation balance of less than $1.7 million on 30 June 2021.

    You can if you meet all requirements.

    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 30 June 2021
    • if you had a transfer balance account prior to indexation occurring and, at any time between 1 July 2017 and 30 June 2021, 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 30 June 2021 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 1 July 2021, we'll re-calculate your entitlement to indexation. We will also apply your new personal transfer balance cap.

    Special rules apply to child death benefit income stream recipients. See the table above for more information.

    If you start your transfer balance account after indexation

    Individuals who start their first retirement phase income stream on or after 1 July 2021 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 on 1 July 2021.

    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 30 June 2021, 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.

    The examples below show how the changes apply 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.

    She didn't have to pay excess transfer balance tax.

    Just before indexation, the balance of her transfer balance account is $1.6 million.

    Meisha isn't entitled to indexation and her personal transfer balance cap remains at $1.6 million.

    End of example

     

    Example 2: Highest 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.

    The balance of her transfer balance account just before indexation is $1.2 million. Maryanne isn't entitled to indexation and her personal transfer balance cap remains $1.6 million.

    She will have cap space available to start a new retirement phase income stream to the value of $400,000.

    End of example

     

    Example 3: Highest 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 won't be entitled to proportional indexation of his personal transfer balance cap.

    He'll have cap space available to start a new retirement phase income stream to the value of $400,000.

    End of example

     

    Example 4: Highest balance of $1.6 million before indexation

    Simon started a pension valued at $1.6 million on 1 July 2020 and has other assets in super.

    He commutes his pension in full on 30 June 2021 and gets a debit of $1.6 million in his transfer balance account on that day.

    The balance of Simon's transfer balance account at the end of the day on 30 June 2021 will be nil.

    Simon plans to start a new pension valued at $1.7 million on 1 July 2021 to take advantage of the new indexation balance cap.

    As Simon isn't entitled to proportional indexation of his personal transfer balance cap, it will remain $1.6 million.

    If Simon starts a new pension valued at $1.7 million he will have an excess transfer balance that he will need to commute.

    He will also have to pay excess transfer balance tax.

    End of example

     

    Example 5: Highest balance of more than $1.6 million before indexation

    Shazhad is a retired public servant and started a lifetime defined benefit pension on 4 April 2021.

    The pension is treated as a capped defined benefit income stream for the purposes of the transfer balance cap. The special value of the pension for transfer balance cap purposes is $1.8 million.

    As Shazhad only has credits in his transfer balance account from capped defined benefit income streams, he hasn't had an excess transfer balance.

    He also hasn't had to commute the excess transfer balance, plus excess transfer balance earnings, or pay excess transfer balance tax.

    As the highest balance of Shazhad's transfer balance account before indexation was more than $1.6 million, he won't be entitled to proportional indexation of his personal transfer balance cap.

    End of example

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

    It is calculated by:

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

    To calculate your unused cap percentage:

    • divide the highest ever balance of your transfer balance account by your transfer balance cap on the first day you had that balance (prior to 1 July 2021 this will be $1.6 million for everyone) and
    • express that as a percentage, rounded down to the nearest whole number
    • subtract the result from 100.

    This is explained further in the following table and examples.

    Proportional indexation of your transfer balance cap

    If your highest 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 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

     

    Example 1

    Nina started 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. 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 on 1 July 2021 is $1.625 million.

    End of example

     

    Example 2

    Leanne started an $800,000 retirement phase income stream on 1 October 2017.

    On 13 May 2019, Leanne commuted $200,000 from her pension. Leanne's 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 on 1 July 2021 is $1.65 million.

    End of example

    Example 3

    Nada started a retirement phase income stream with a value of $490,700 on 14 May 2020.

    There are no other events in their transfer balance account. Nada’s personal transfer balance cap on 14 May 2020 was $1.6 million.

    Nada’s unused cap percentage is calculated as:

    = 0.30625 being $490,000 (highest ever balance of their transfer balance account) divided by $1,600,000 (transfer balance cap on the first day they had that balance)

    = 30% expressed as a percentage, rounded down to the nearest whole number

    = 70% subtract the result from 100.

    This will give Nada a personal transfer balance cap from 1 July 2021 of $1.67 million.

    End of example

    Changes affecting child death benefit income streams

    If your only income stream is a child death benefit, your transfer balance cap increment won't 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 won't change
    • personal transfer balance cap for your other income streams may be indexed.

    Example

    Kane is a child death benefit beneficiary and receives another income stream.

    Just before indexation, Kane’s child death benefit cap increment is $417,082. Kane also has a credit in his transfer balance account of $1.28 million.

    On 1 July 2021 when indexation of the general transfer balance cap occurs, Kane’s child cap increment will remain at $417,082.

    His personal transfer balance cap will be indexed.

    Kane’s unused cap percentage is 20% of $1.6 million.

    Kane's personal transfer balance cap will be indexed by 20% of $100,000.

    Kane’s personal transfer balance cap after indexation on 1 July 2021 is $1.62 million.

    End of example

    Changes affecting capped defined benefit income streams

    When the general transfer balance cap is indexed on 1 July 2021, the defined benefit income cap, currently $100,000 for most individuals, 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 are:

    • 60 years or over
    • Younger than 60 and the capped defined benefit income stream is a death benefit, and the member was 60 or over 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 that 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 2021, individuals with a total superannuation balance of $1.7 million or more on 30 June 2021, will have a non-concessional cap of nil from 1 July 2021.

    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 2021, individuals with a total superannuation balance of $1.7 million or more on 30 June 2021 won't be eligible for the bring forward arrangements from 1 July 2021.

    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 on 1 July 2021.

    When the general transfer balance cap is indexed on 1 July, individuals with a total superannuation balance of less than $1.7 million on 30 June 2021 will be entitled to a co-contribution, if other criteria are met.

    See also:

    Spouse tax offset changes

    The limit that 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 the offset for contributions they make on or after 1 July 2021 on behalf of their spouse, provided the spouse's superannuation balance is not more than $1.7 million on 30 June 2021.

    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: 10 Feb 2021QC 60627