The superannuation transfer balance cap (TBC) is a lifetime limit on the amount of super which can be transferred into the tax-free pension phase of a super fund.
A value limit is set when the pension begins, and is not adjusted by value fluctuations or pension drawings.
From 1 July 2023 for 2023-24 the transfer balance cap is $1.9 million.
The transfer balance cap limit from 1 July 2021 for the 2021-22 and 2022-23 years is $1.7 million.
From 1 July 2017 to 30 June 2021 the cap limit was $1.6 million.
The total superannuation balance (TSB) is the sum total value of all of a member’s accumulation and retirement phase interests at 30 June each year.
Where total super balances exceed the TSB cap, no further non-concessional contributions can be made in the following financial year without exceeding the non-concessional contributions cap.
From 1 July 2017 the total superannuation balance must be below a value limit (initially set at $1.6 million) in order to be able to access the bring-forward concessions as well as the low income co-contributions and spouse contributions tax offsets.
In addition, from 1 July, SMSFs can’t apply the segregated assets method to determine (ECPI) tax-exempt income if any member of the fund has a super balance exceeding the cap and that member is in retirement phase.
See further: Law Companion Ruling LCR 2016/12DC Superannuation reform: total superannuation balance
TBC and TSB value limits
The initial cap limit of $1.6 million in 2017 is adjusted annually in $100,000 increments in line with the CPI.
In accordance with the indexation rules indexation of the Transfer Balance Cap is uplifted from $1.6 to $1.7 million when the quarterly All Groups CPI is 116.9 or higher.
Since the All Groups CPI figure for the December 2020 quarter exceeded 116.9, the general transfer balance cap was indexed to $1.7 million to apply from 1 July 2021.
This means the defined benefit income cap for these 2 years is increased to $106,250 (being $1.7 million divided by 16). The non-concessional total contributions cap also becomes $1.7 million from 1 July 2021. For an illustration of calculations where the total balance is under the limit before 1 July 2021, and some planning tips, see the article here.
On a similar basis, the cap from 1 July 2023 (for 2023-24) is uplifted by $200,000 to $1,900,000, with the defined benefit income cap increased to $118,750 (being 1/16th of $1,900,000).
After indexation, an individual’s transfer balance cap value will depend on their circumstances, and in particular when their transfer balance account commenced. See further indexation information.
Transfer Balance Caps Indexation
|1 July 2017 (commencement)||$1,600,000|
|1 July 2021||$1,700,000|
|1 July 2023||$1,900,000|
Note that the full indexed cap increase may only be available on a proportional basis.
For example, if 70% per cent of the cap is used, the unused cap percentage will be 30%.
On the indexation increase of the cap by $200,000 on 1 July 2023 (from $1.7 million to $1.9 million), the personal cap availability thus increases by 30% of $200,000 which is $60,000. The effective personal cap in that case becomes $1.76 million.
If the cap has been fully used prior to indexation, there is no further cap increase available.
General Transfer Balance Cap And Defined Benefit Income Cap
- from 1 July 2023 – (2023-24) $1.9 million (Defined Benefit Income Cap: $118,750)
- from 1 July 2021 – (2021-22 and 2022-23) $1.7 million (Defined Benefit Income Cap: $106,250)
- from 1 July 2020 (2020-21) – $1.6 million (Defined Benefit Income Cap: $100,000 for each of 2017-2021))
- from 1 July 2019 (2019-20) – $1.6 million
- from 1 July 2018 (2018-19) – $1.6 million
- from 1 July 2017 (2017-18) – $1.6 million
Investment growth (for example, interest earned) on a pension fund is not counted towards the cap.
Your total superannuation balance can be checked online via my.gov.au
SMSFs and Account Based Pensions
The transfer balance cap (initially $1.6 million) is counted on a member-by-member basis.
Transfers of assets into the retirement fund count as credits towards the cap balance, and transfers out count as debits. The value of all pensions or annuities must be counted towards the cap.
Transition to retirement streams are not part of these arrangements until age 65 or retirement.
A transfer balance reporting regime has been implemented from 1 July 2017 in order for the Tax Office to keep track of compliance within the cap limits.
On introduction from 1 July 2017, excess balances (over the $1.6 million cap) of $100,000 or more were able to be removed by 31 December 2017 without penalty.
Capital gains relief was available for gains on the movement of assets from retirement phase account back into your accumulation account in order to be under the cap before 1 July 2017.
Excess balances need to be adjusted, along with the associated earnings, to remove them from the tax-free retirement fund.
For this purpose the Tax Office will initiate action by issuing an excess transfer balance determination and commutation notice.
Once complied with (i.e. excess funds removed from retirement), an excess transfer balance tax assessment is issued on the earnings for the period(s) of the breach. The tax is:
- 15% for any excess periods that start in 2017-18 financial year; and
- from 1 July 2018 the tax is 15% for a first year breach and 30% for subsequent breaches.
Excess transfer balance tax is not imposed on defined benefit income streams, which are instead subject to an income cap.
The cap was initially set at $100,000 per annum from 1 July 2017 and remains at this amount through 2018-19, 2019-20 and 2020-21.
The indexed defined benefit income cap is determined as one 16th of the general cap amount.
- from 1 July 2023: $118,750
- from 1 July 2021: $106,250
- from 1 July 2017: $100,000
Pensions from a taxed source are tax-free from age 60 with 50% of any excess included in taxable income and taxed at the marginal rate.
Pensions from an untaxed source (e.g. certain statutory funds) are included in taxable and taxed at marginal rate with a 10% tax rebate.
Mixed – Defined Benefit and Account-Based Pensions
For a member with a mixture of defined benefits and account-based balances, a formula is applied to the defined benefit.
For cap calculation purposes the defined benefit annual pension amount is multiplied by a factor of 16 and added to the account-based pension balance before applying the account-based excess rules as outlined above.
- Superannuation Transfer Balance Cap Explained
- The Transfer Balance Cap in Summary
- Transfer balance cap
- LCR 2016/9 Guidance on transfer balance cap for account-based income streams
- GN 2017/8 Guidance on what is the total superannuation balance
- GN 2017/1 Guidance on transfer balance cap for retirement phase accounts
- Strategies to reduce your total superannuation balance: Part 1 Part 2
This page was last modified 2023-06-28