Transfer balance cap indexation – let the fun begin!

The ATO has confirmed that, from 1 July 2021, the general transfer balance cap (currently $1.6 million) will be indexed to $1.7 million.

Following indexation, no single transfer balance cap will apply and transfer balance caps will be between $1.6 million and $1.7 million, depending on each person’s circumstances.

Never drawn a pension since 1 July 2017

Where a person starts a retirement phase income stream (pension) for the first time on or after 1 July 2021, then they will have a transfer balance cap of $1.7 million, receiving the full indexation of the general transfer cap.

Have drawn a pension since 1 July 2017

However, if a person was receiving a pension at any time between 1 July 2017 and 30 June 2021 and had a transfer balance account between those dates, then their personal transfer balance cap will:

a. remain at $1.6 million if the balance of their transfer balance account was ever $1.6 million or more; or

b. in all other cases, be somewhere between $1.6 million and $1.7 million, with indexation only being applied to the amount of their transfer balance cap never used.

Example

For example, if John commenced an account based pension on 1 July 2017 with $720,000, John’s transfer balance account would have been credited by $720,000 on that date. If there have been no other credits to John’s transfer balance account since 1 July 2017 (regardless of whether he later commuted that pension or the value of the assets supporting that pension have increased above the starting amount), John’s personal transfer balance cap will be calculated as follows:

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The transfer balance cap rules are complicated and impact many things, including an individual’s ability to make non concessional contributions and access the bring forward arrangements. Indexation adds another layer of complexity in an already far from simple area.

For any questions regarding how transfer balance cap rules work and the impact of indexation, please contact one of our team.