Transfer balance account
The transfer balance account is a record of the transfers in and out of your super accounts in retirement phase.
The transfer balance account is a record of the events that count towards your personal transfer balance cap.
The balance of your transfer balance account determines:
- whether you have exceeded your personal transfer balance cap at the end of a particular day, and
- if your personal transfer balance cap will be indexed.
You will only have one transfer balance account for all your retirement phase interests which will remain active until your death.
Special rules apply for child recipients of a death benefit income stream.
Your transfer balance account commences on either:
- the day you first receive a retirement phase income stream after 1 July 2017
- 1 July 2017, if you were already receiving a retirement phase income stream on 30 June 2017.
You can make multiple transfers into the retirement phase, provided you have available personal cap space. If at any time you reach or exceed your personal transfer balance cap, you will not be entitled to indexation of the transfer balance cap.
Transfer balance cap
The transfer balance cap applies from 1 July 2017. It is a lifetime limit on the total amount of capital that individuals can transfer into the retirement phase to support super income streams.
In 2017–18, the general transfer balance cap was 1.6 million. It is subject to indexation in $100,000 increments on an annual basis in line with the consumer price index (CPI), rounded down to the nearest $100,000.
An individuals' personal transfer balance cap equals the general transfer balance cap at the time they begin their first income stream. It may be modified by proportional indexation of their cap depending on whether they have available personal cap space.
Refer to Key superannuation rates and thresholds – Transfer balance cap for current general transfer balance cap and defined benefit income cap rates.
Personal transfer balance cap
Before indexation on 1 July 2021, all individuals with a transfer balance account had a personal transfer balance cap of $1.6 million.
When the general transfer balance cap was indexed to $1.7 million on 1 July 2021, if you had a transfer balance account before 1 July 2021, then your personal transfer balance cap will be between $1.6m and $1.7.
The amount of indexation you are entitled to will be calculated proportionally based on your available cap space. If you meet or exceed your cap at any time before 1 July 2021, you will not be entitled to indexation.
Cindy receives a superannuation income stream. The highest amount she had in retirement phase was $400,000 in July 2019. As her personal transfer balance cap was $1,600,000 at that time, Cindy had 75 per cent of her unused cap space available.
In August 2021 Cindy received an inheritance of $1.4 million and would like to use this to start a new income stream.
Cindy's indexed personal transfer balance cap is $1,675,000, as she is only entitled to 75 per cent of indexation.
Therefore, the maximum she can add to retirement phase without breaching her cap is $1,275,000.
End of example
Exceeding your personal transfer balance cap
If you exceed your personal transfer balance cap, you may have to:
- commute the excess from one or more retirement phase income streams by
- converting a portion of your retirement phase income stream into a lump sum payment, or
- commuting the amount in excess back into accumulation phase (unless it is a death benefit income stream)
- pay tax on the notional earnings related to that excess.
If the amount in your retirement phase account grows over time (through investment earnings) to more than your personal transfer balance cap, you won’t exceed your cap. If the amount in your retirement phase account goes down over time, you can’t 'top it up' if you have already used all of your personal cap space.
Different tax rules apply to capped defined benefit income streams, as you usually can’t transfer or commute excess amounts from these income streams.
Richard started a pension valued at $1.6 million on 1 July 2017. This uses up all his personal transfer balance cap. Richard would not be entitled to future indexation.
By 1 July 2019, the value of that pension account had grown to $2.0 million. As this growth is due to investment earnings, Richard has not exceeded his personal transfer balance cap.
On 30 June 2020, the value of that pension account had fallen to $1.0 million due to the impact of COVID-19 on the assets supporting the pension. Richard cannot 'top up' his pension account with money he holds in his accumulation account because he has already used all his personal cap space.
End of example
For information on how the transfer balance account applies to account-based income streams, see LCR 2016/9 Superannuation reform: transfer balance cap.