Transfer Balance Cap Australia Explained
What is Transfer Balance Cap?
The government introduced a Transfer Balance Cap (TBC) in July 2017, which effectively limits the total amount of superannuation available to be transferred into a tax-free retirement phase pension. 1 July 2021 will be the first time this cap has been increased, in line with the Consumer Price Index (CPI).
One of the main advantages of moving super savings into a retirement pension is that the investment returns in your retirement pension account, as well as any pension payments you get from age 60 onwards, are tax-free.
Depending on personal circumstances, every individual will have their own Transfer Balance Cap (TBC) which is $1.9 million. An individuals’ TBC is equal to the general TBC at the time of commencing a superannuation income stream. If an individual uses a proportion of their TBC, their personal TBC is calculated with a proportional indexation in line with the CPI increases to the general TBC. Details of the level of an individual’s TBC will be available through their myGov account.
Changes to Caps
Indexation of the general Transfer Balance Cap (TBC) will also change the cap that applies to eligibility criteria to make non-concessional contributions and to access the government co-contribution and the super related tax offsets. Commencing 1 July 2024, the new cap for these arrangements will be $1.9 million. For capped defined benefit income streams, the cap will increase to $118,750 (currently $106,250).
There won’t be a single cap that applies to everyone when the general transfer balance cap is indexed to $1.9 million. Depending on their circumstances, each individual will have a personal transfer balance cap of $1.9 million.
Clients who started receiving retirement income (between July 2017 and June 2023) won’t be limited by the new $1.9 million cap. Instead, their cap will be an amount between $1.6 million and $1.9 million, increasing by $1,000 increments.
How might this impact to you?
- Individuals may be able to benefit from this CPI increase if they have started using their retirement income stream, but have not fully utilised their current Transfer Balance Cap (TBC) by 1 July 2024.
- Individuals who may be considering starting their retirement income stream soon may be better off deferring starting this income stream until after 1 July 2024.
- Individuals wanting to make non-concessional contributions to superannuation will have an increased cap to determine their eligibility to make these contributions.
- Individuals wanting to access government co-contribution or spouse tax offset government benefits will have an increased cap to determine their eligibility.
