What is Transfer Balance Cap (TBC)

The Transfer Balance Cap started on 1 July 2017. It limits the total amount of superannuation that can be transferred into a retirement phase pension, where there will be tax free on investment savings. The cap does not apply to investment earnings made in retirement phase. Hence, if the pension account balance grows over the limit, the Trustee would not need to do anything.

The Transfer Balance Cap was $1.6 million, now it is indexed to $1.7 million from 1 July 2021. Going forwards, the cap will be increasing to $1.9 million from 1 July 2023. 

Transfer Balance Cap changes on 1 July 2021

From 1 July 2021, in line with increases in inflation as measured by the CPI, the transfer balance cap is increased to $1.7 million. The cap only applies to Members who start a retirement phase pension for the first time on or after 1 July 2021. Please see the following informations in regards to how it might affect the Members of Fund:

  • The transfer balance cap will be 1.7 million if the Member starts an accounts-based pension on or after 1 July 2021
  • The transfer balance cap will remain at 1.6 million if the Member has an existing accounts-based pension and the 1.6million cap was exhausted in the past between 1 July 2017 – 30 June 2021
  • The transfer balance cap limit will be proportionally indexed based on their highest ever balance and would be between $1.6 and 1.7 million if the Member has an existing accounts-based pension and 1.6 million cap limit was never reached during the period 1 July 2017 – 30 June 2021.

Transfer Balance Cap changes as at 1 July 2023

From 1 July 2023, the transfer balance cap increased to $1.9 million. Similar to previous changes, the cap will only be applicable to Members starting Pension phase on or after 1 July 2023. 

Any amounts in excess of the cap will need to be transferred out of the tax exempt pension phase, either back to the accumulation phase (earnings taxable at 15%) or out of the superannuation system entirely as a lump sum. Although transfers to the tax exempt pension phase will be limited, there are no restrictions on how much a Member can continue to hold in the accumulation phase. If your pension balance is exceeded, you will need to make a request to convert part or all of your pension accounts into accumulation phase to ensure that your total pension balance does not exceed the cap. You can download the minute template by clicking the button below:

If you have a pension balance of exceeding the cap, you might need to purchase an actuarial certificate to determine which portions of the SMSF are taxed at 15% and which portions are tax free. For more information about Actuarial Certificate, click here.

If your total pension balance is over $1.9 million, you will not be able to use the segregated method for the SMSF’s assets. 

About Transitional CGT Relief

The purpose of the transitional CGT relief is to provide temporary relief for certain CGT assets that will lose the tax exemption in complying with the new transfer balance cap and TRIS.

As a Trustee, you have access to temporary CGT relief if one or more of the Members in the SMSF are affected by the changes.

  • Under the new transfer balance cap rules that commenced on 1 July 2017, a Member may need to reduce amounts currently supporting retirement phase super income streams. They may do this by transferring the amount back to the accumulation phase or withdrawing amounts from super.
  • Under the changes that remove the tax-exempt status of assets supporting a TRIS, from 1 July 2017, you will lose the exemption for earnings from assets supporting TRIS and the earnings will be taxable. This is because TRIS will no longer be considered super income streams in retirement phase.

How to Apply CGT Relief

If the asset are held throughout the period 9 November 2016 to 30 June 2017, Trustees can choose to apply temporary CGT relief.

Applying CGT relief will:

  • reset the cost base of an asset to its market value on the date of the asset transfer. This is where you reallocate or re-proportion assets from retirement phase to accumulation phase.
  • defer a capital gain that arises when resetting the cost base for re-proportioning assets where you use the proportionate method.

Certain events that impact on the Transfer Balance Account must be reported to the Tax Office under Superannuation Transfer Balance Account Reporting regime (TBAR). For more information on TBAR Reporting, please visit our page here.

Our Approach

If your pension balance is over the cap, we will automatically reset the asset cost base in a most tax-effective manner to take advantage of the CGT relief. It is an ATO requirement to note the cost base reset in the SMSF Financial Reports and Tax Return.

For more guidance on the SMSF Annual Return, please click the button below:

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