Cap that! Impact of indexation on the transfer balance cap

The government introduced a Transfer Balance Cap (TBC) in July 2017, which effectively limits the total amount of super able 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 CPI, so the threshold will increase from its current level of $1.6 million, up to $1.7 million.

Depending on personal circumstances, every individual will have their own TBC, between $1.6 million to $1.7 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 to 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.

Other changes to caps

Indexation of the general 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 Spouse tax offset. Commencing 1 July 2021, the new cap for these arrangements will also be $1.7 million (currently $1.6 million). For capped defined benefit income streams, the cap will increase to $106,250 (currently $100,000).

How might this increase impact 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 TBC by 1 July 2021.
  • Individuals who may be considering starting their retirement income stream soon may be better off deferring starting this income stream until after 1 July 2021.
  • 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.

If you have any questions about changes to these caps, or believe you may be impacted by these changes, please call us to discuss.

 


This article is of a general nature only and are not to be taken as recommendations as they might be unsuited to your specific circumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.

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