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  • Indexation of the general transfer balance cap

    How indexation of the general transfer balance cap impacts your personal transfer balance cap.

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    Transfer balance cap

    From 1 July 2017, the transfer balance cap limits the total amount of super you can transfer into retirement phase (earnings are exempt from tax). This is a lifetime limit.

    Under the tax law, the transfer balance cap is indexed in increments of $100,000 based on the December all groups CPI rate.

    When you first start to have a transfer balance account, your cap is equal to the general transfer balance cap for that financial year.

    2018 general transfer balance cap

    For the 2018 financial year, the general transfer balance cap was $1.6 million. This was indexed to $1.7 million on 1 July 2021. Until 30 June 2021, if you had a transfer balance account, your personal transfer balance cap was equal to the general transfer balance cap of $1.6 million.

    The indexation on 1 July 2021 means that there is not a single cap that applies to all individuals. You have your own personal transfer balance cap, depending on the:

    • financial year you first start your transfer balance account
    • any increments that have been applied.

    Your transfer balance cap

    Your transfer balance cap is proportionally indexed and worked out by your highest ever transfer balance at the end of a day compared to your personal transfer balance cap on that day. The unused cap is expressed as a percentage. If at any stage you have used all your cap, then indexation will not apply to you.

    If you start a transfer balance account on or after 1 July in a financial year where indexation has occurred, your personal transfer balance cap will equal the general transfer balance cap.

    See more about current and previous general transfer and defined benefit income caps.

    If you had a transfer balance account before 1 July in a financial year before indexation has commenced, then your personal transfer balance cap will be based on your unused cap percentage. This is derived from the highest ever balance of your transfer balance account.

    When the general transfer balance cap is indexed, your entitlement to indexation of your personal transfer balance cap depends on:

    • the financial year when you start your transfer balance account, and
    • your highest ever balance in your transfer balance account.

    You can view your transfer balance account and cap information in ATO online, including:

    • your highest ever balance in your transfer balance account
    • your personal transfer balance cap
    • if your personal transfer balance cap is entitled to be proportionally indexed.

    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.

    Summary of changes

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

    How you will be affected by indexation of the general transfer balance cap

    If

    Then

    Your first retirement phase event occurs in your transfer balance account on or after 1 July in the financial year when indexation has occurred.

    Your personal transfer balance cap will be equal to the new general transfer balance cap plus any increments you may be entitled to.

    Depending on your highest ever balance, your cap may increase with the next indexation of the general transfer balance cap.

    Your retirement phase event occurred in your transfer balance account before 1 July in the financial year when indexation commenced.

    Your personal transfer balance cap may have increased with indexation on 1 July based on your highest ever balance in your transfer balance account.

    If you have ever reached or exceeded your personal transfer balance cap, then you will not be entitled to indexation of your transfer balance cap.

    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 as under the tax law this cap is not worked out on a financial year basis nor indexed.

    If you receive another retirement phase income stream, your personal transfer balance cap may increase with indexation depending on your unused cap percentage and highest ever balance.

    See more about indexation and child death benefit income streams.

    You will receive 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.
     

    Each time the general transfer balance cap is indexed, there is a proportional increase in the defined benefit income cap.

    Your defined benefit income cap for a financial year is equal to the general transfer balance cap for the corresponding financial year divided by 16.

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

    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 more on how indexation applies to capped defined benefit income streams.

    Check current and previous defined benefit income caps.

    You make a non-concessional contribution to your super and have a total super balance equal to or higher than the general transfer balance cap

    You will exceed your non-concessional contributions cap.

    Find out how indexation of the general transfer balance cap impacts your non-concessional contributions cap.

    You want to receive a government co-contribution after contributing to your fund and you have a total super balance less than the general transfer balance cap on 30 June of the previous financial year.

    You can if you meet all requirements.

    The limit to receive a co-contribution increases with indexation of the general transfer balance cap.

    You want to claim the spouse tax offset for super contributions and your spouse has a total super balance less than the general transfer balance cap on 30 June of the previous financial year.

    You can if you meet all requirements.

    The spouse total super balance limit increases with indexation of the general transfer balance cap.

    Indexation of your transfer balance cap

    Your transfer balance cap will be proportionally indexed if:

    • you had a transfer balance account in the financial year before indexation commenced, and
    • at any time, your account balance did not meet or exceed your personal transfer balance cap – that is, your highest ever balance in your transfer balance account at the end of any given day at no time reached or exceeded your personal transfer balance cap.

    We calculate your entitlement to indexation and your personal transfer balance cap after indexation. It is based on the information reported by funds 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 before indexation, we 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

    If your first retirement phase event occurs in your transfer balance account on or after 1 July in the financial year that indexation occurs, your personal transfer balance cap is equal to the general transfer balance cap and any increments you may be entitled to.

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

    Graham started his first retirement phase income stream on 1 July 2021 when the general transfer balance cap was indexed from $1.6 to $1.7 million.

    His personal transfer balance cap is $1.7 million. An existing child income stream does not impact on your transfer balance cap calculation. It isn't until your start your own income stream that a general cap will be assigned.

    End of example

    Example: existing child income stream and your first retirement phase event occurs after indexation

    Trish has an existing child income stream and a child increment of $100,000. Trish starts her own pension on 9 October 2022. The general transfer balance cap is $1.7 million.

    Her personal transfer balance cap is $1.8 million (the general transfer balance cap plus the child increment).

    End of example

    If you had a transfer balance account before indexation

    If you had a transfer balance account before indexation starts, your cap will remain the same if at any time your balance met or exceeded your cap.

    Example: 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 occurred on 1 July 2021, the balance of her transfer balance account was $1.6 million, therefore she has no cap space remaining.

    Meisha was not entitled to indexation and her personal transfer balance cap remained at $1.6 million.

    End of example

    This applies even if the balance of your transfer balance account is less than the general transfer balance cap when indexation occurs.

    Example: 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 commenced on 1 July 2021 was $1.2 million. Maryanne wasn’t entitled to indexation as her highest ever balance was equal to her personal transfer balance cap and her personal transfer balance cap remained at $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

    Your transfer balance account cannot be closed and restarted. Your general cap will always be based on the cap when you first started to have a transfer balance account.

    Example: transfer balance account reduced to zero 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 is nil.

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

    Simon isn't entitled to proportional indexation of his personal transfer balance cap as his highest ever balance before indexation was equal to his personal transfer balance cap. His personal transfer balance cap remains at $1.6 million.

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

    He would also have to pay excess transfer balance tax.

    End of example

    Capped defined benefit incomes streams greater than the general cap do not cause an excess by themselves but you will not be eligible for indexation.

    Example: capped defined benefit balance of more than $1.7 million before indexation

    Shazhad is a retired public servant and started a lifetime defined benefit pension on 4 April 2022.

    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 (which is the annual entitlement multiplied by 16) for transfer balance account purposes is $1.8 million.

    Shazhad only has credits in his transfer balance account from capped defined benefit income streams. He hasn't had an excess transfer balance as having only a capped defined benefit income stream doesn't cause him to breach his transfer balance cap.

    He also hasn't had to commute the excess transfer balance, plus excess transfer balance earnings, or pay excess transfer balance tax. However, Shazhad may have to pay additional income tax if this capped defined benefit income streams exceeds a separate defined benefit income cap.

    As the highest balance of Shazhad's transfer balance account before indexation was more than $1.7 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 personal transfer balance cap on the first day you had that balance and
    • express that as a percentage, rounded down to the nearest whole number
    • subtract the result from 100.

    Calculation of the personal transfer balance cap is illustrated in the following examples.

    If your account has always been under your cap you will received proportional indexation.

    Example: highest ever balance below $1.6m before indexation with no debits.

    Nina started a retirement phase income stream with a value of $1.2 million on 1 October 2018.

    There are no other events in her transfer balance account. The highest ever balance is $1.2 million.

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

    Her 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

    The indexation increment is calculated based on your highest's ever balance. Any debits you make prior to indexation will not increase your increment.

    Example: highest ever balance below $1.6m before indexation

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

    On 13 May 2019, she 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 is $800,000.

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

    Her 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

    Indexation and 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: indexation increment and child increment

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

    Just before indexation, his child death benefit cap increment is $400,000. 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 occurred, his child cap increment remained at $417,082.

    His personal transfer balance cap was indexed.

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

    His personal transfer balance cap was indexed by 20% of $100,000.

    Kane’s personal transfer balance cap after indexation on 1 July 2021 is $2.02 million.

    End of example

    Indexation and capped defined benefit income streams

    When the general transfer balance cap is indexed, the defined benefit income cap is also proportionally indexed. Your defined benefit income cap for a financial year is the general transfer balance cap for the corresponding financial year divided by 16.

    For example, on 1 July 2021 the general transfer balance cap increased from $1.6 to $1.7 million, with a proportional indexation of the defined benefit income cap from $100,000 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
      • 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 with indexation. However, this offset will not apply to any untaxed element over your defined benefit income cap.

    If the income stream you receive is a taxable component only or both taxable and tax-free component, 50% of your annual income over your defined benefit income cap will be taxed at your current marginal tax rate.

    See more on how your transfer balance cap is impacted by a capped defined benefit income stream.

    Non-concessional contributions cap changes

    The total super balance limit that determines if you have a non-concessional contributions cap of nil increases with indexation.

    Example: TSB is equal to cap

    Trent's total super balance is $1.7 million on 30 June 2021. The general transfer balance cap was indexed on 1 July 2021. His non-concessional cap was nil from 1 July 2021.

    If Trent makes non-concessional contributions to his super, he will exceed his nil cap.

    See more on exceeding caps.

    End of example

    The total super balance limit, which determines if you are entitled to use the non-concessional bring forward arrangements, also increases with indexation.

    Example: TSB equals the cap

    On 30 June 2021 Nicole's total super balance was $1.7 million.

    She was hoping to take advantage of the bring forward arrangements to contribute $200,000 into her super but was not eligible.

    The general transfer balance cap was indexed to $1.7 million on 1 July 2021. Nicole is still ineligible due to having $1.7 million total super balance at 30 June 2021.

    End of example

    Co-contribution changes

    The limit that determines if you are entitled to a co-contribution increases in line with indexation of the general transfer balance cap.

    When the cap is indexed, if you have a total super balance less than the general transfer balance cap at 30 June the previous financial year, you will be entitled to a co-contribution if other criteria are met.

    See more about eligibility for the super co-contribution.

    Spouse tax offset changes

    The limit that stops you from claiming the tax offset for super contributions made on behalf of your spouse will rise with indexation of the general transfer balance cap.

    When the cap is indexed, you will be able to claim the spouse tax offset for contributions made on behalf of your spouse on or after the date of indexation, if their super balance is less than the new cap on 30 June before indexation.

    For example, you will be able to claim the spouse tax offset for contributions made on behalf of your spouse in the 2021–22 financial year, if their super balance is not more than $1.7 million on 30 June 2021.

    See more about eligibility for the spouse tax offset.

    For more information and examples of transfer balance caps, see:

    • 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: 13 Dec 2022QC 60627