Super strategies will soon need to factor in new transfer balance caps
When the legislation to limit the amount that can be transferred into a pension account took effect on 1 January 2017, there was always written into those rules a requirement for the transfer balance cap (TBC) to eventually be indexed.
The legislation, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016, provides that the general TBC is to be indexed in increments of $100,000 if the indexation rate reaches a prescribed figure (and this is calculated using a formula set out in the legislation).
The ATO has only recently made firm announcements that indexation of the TBC is a looming reality, but essentially depends on the December 2019 indexation rate. If the “All groups CPI weighted average of eight capital cities” reaches or surpasses 116.9 index points, then indexation of the TBC will occur at the next 1 July. (At 30 September 2019 the CPI was at 115.4 — see quarter ending rates for CPI here.) Therefore, the earliest this may occur is next July, however it may be delayed until 1 July 2021, depending on the December CPI.
Note that the ATO has already announced that its web content referring to the TBC has been updated to highlight how individuals will be affected by this future indexation.
The general TBC may not apply
The general TBC is currently $1.6 million, but after indexation there may not be a single cap that applies across the board. Every individual will have their own cap, which should be between $1.6 million and $1.7 million, depending on circumstances.
If you had a transfer balance account before indexation occurs, your personal transfer balance cap will be:
$1.6 million if, any at time between 1 July 2017 and indexation occurring, the balance of that account was $1.6 million or more
between $1.6 and $1.7 million in all other cases, based on the highest ever balance of your transfer balance account.
If you start a retirement phase income stream for the first time after indexation occurs, you will have a personal transfer balance cap of $1.7 million.
It is worth pointing out that indexation of the general transfer balance cap may also change other caps and limits that may apply, especially if you:
make non-concessional contributions to super
make a non-concessional contribution to super and may be eligible for a co-contribution
make a concessional contribution to super on behalf of a spouse and you intend to claim a tax offset for that contribution.
Harper Group Pty Ltd – Chartered Accountants Frankston - Ph 9770 1547
Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.