Transfer Balance Cap

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)

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 limits introduced on commencement of both caps

  • from 1 July 2017 (2017-18) – $1.6 million
  • from 1 July 2018 (2018-19) – $1.6 million

The cap is limit of $1.6 million is to 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.

How to request a Total Superannuation Balance from the Tax Office

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.

Excess balances

On introduction from 1 July 2017, excess balances (over the $1.6 million cap) of $100,000 or were able to be removed by 31 December 2017 without penalty.

Capital gains relief is 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.

See further:

 

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.

 

See further

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This page was last modified 2018-12-22