The superannuation transfer balance cap (TBC) is a 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.
The Total Super Balance (TSB)
A cap for the same amount referred to as 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.
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.
TBC and TSB value limits
The initial limit introduced on commencement of both caps
- from 1 July 2017 is $1.6 million
- from 1 July 2018 – remains at $1.6 million
In future years it is intended that the limit of $1.6 million will be adjusted annually (in $100,000 increments) in line with the CPI. Existing pension balances which started out under $1.6 million cap will be adjusted upwards in proportion to the gap between the actual super balance and pre-existing cap only.
Investment growth (for example, interest earned) on the pension fund is not counted towards the cap.
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.
Defined Benefits Income Cap
Excess transfer balance tax is not imposed on defined benefit income streams, which are instead subject to an income cap.
The cap is initially set at $100,000 per annum from 1 July 2017 and remains at this amount through 218-19 to 30 June 2019.
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 available on the first $100,000 of income.
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.
- Strategies to reduce your total superannuation balance: Part 1
- Strategies to reduce your total superannuation balance: Part 2
- Strategies to reduce your total superannuation balance: Part 3
- Transfer balance cap
- Transfer balance cap: post-30 June 2017 issues
- The Transfer Balance Cap in Summary
- Simple Account Based Pension Reform
- Three super changes that will impact defined benefit pensions from 1 July
- SMSFs in the post Superannuation reform environment
- Market linked pensions and treatment of unintended consequences
This page was last modified 2018-09-05