Neil Stafford, Head of Complex Advice: Transfer Balance Cap Indexation Alert

CPI figures released recently confirm indexation of the general transfer balance cap will occur on 1 July 2021. The general transfer balance cap is currently $1.6 million. From 1 July 2021, it will be indexed to $1.7 million.

When the general transfer balance cap is indexed to $1.7 million, there will no longer be a single cap that applies to all individuals with a retirement phase income stream. Each individual will have their own personal transfer balance cap of between $1.6 and $1.7 million, depending on their circumstances. This will occur through “proportional indexation”.

Other implications:

  • Indexation of the general transfer balance cap has consequences that flow through to other parts of the tax and superannuation systems:
  • The defined benefit income cap, currently $100,000 for most people receiving income from capped defined benefit income streams, will be indexed to $106,250
  • The limit which determines if an individual has a non-concessional contributions cap of nil, will increase from $1.6 million to $1.7 million.
  • The limit which determines if an individual is entitled to use the non-concessional bring forward arrangements will increase from $1.6 million to $1.7 million.
  • The limit which prohibits an individual from claiming the tax offset for superannuation contributions they make on behalf of their spouse will rise from $1.6 million to $1.7 million.
  • The limit which determines if an individual is entitled to a co-contribution will increase to $1.7 million.
  • Service providers may need to review the information they provide to clients and SMSF administrators may need to update their procedures, including adjusting withholding tax if they are paying capped defined benefit income streams to members.

Before 1 July 2021, you can see your highest ever balance in your transfer balance account via the ATO. You can also see if your personal transfer balance cap will be proportionally indexed.

From July 2021, you will be able to see your personal transfer balance cap in ATO online. This will be the only place you can see your personal transfer balance cap if you had a transfer balance account before 1 July 2021.

The calculation of proportional transfer balance cap indexation is complex and may give rise to unintended breaches of the cap if mistakes are made.

 


Article by Neil Stafford, Head of Complex Advice