What is a transfer balance cap?
The transfer balance cap was introduced by the Federal Government on 1 July 2017 to limit the amount of super that can be transferred from accumulation accounts to a retirement income stream which has tax-free investment earnings. This cap applies across all super account balances that you may hold and is monitored by the Australian Taxation Office (ATO).
The cap commenced at $1.6 million and will be indexed in $100,000 increments in line with CPI. The amount of indexation that is applicable depends on how much of the cap you have remaining.
What counts towards the cap?
All retirement income stream account balances count towards the cap as well as any income streams you may receive from a late spouse’s super. The cap does not apply to Transition to Retirement Income Streams or investment earnings within a retirement income stream.
Reversionary income streams that revert to a beneficiary immediately on the death of the member do not count towards the transfer balance cap until 12 months after the death of the member.
The ATO maintains a transfer balance account to track the amounts that are transferred to the retirement phase. Any time a retirement income stream is commuted (by making a lump sum withdrawal or rolling money over), your transfer balance account is reduced. Similarly, if a retirement income stream is then restarted, this amount is added to your transfer balance account. The transfer balance account is not reduced by fees, charges, investment losses or payments you receive from your retirement income stream.
Exceeding the cap
In most cases, the ATO will contact you and outline your options. If you have a retirement income stream balance across all super funds that exceeds $1.6 million you will generally need to transfer the excess amount (including any notional earnings) back into an accumulation account or withdraw the amount. In addition to this, you will also need to pay the excess transfer balance tax. From 1 July 2018, the tax rate is 15% of notional earnings on the excess capital for the first breach and then 30% for subsequent breaches.
Find out more
You’ll find more detailed information about the transfer balance cap in the Transfer Balance Cap Fact Sheet or for more detailed advice you can talk to a QIEC Financial Planner – simply call 1300 360 507 to make an appointment.*
* Fees may be charged for the provision of personal advice, but where the advice relates to your superannuation, these costs may be deducted from your superannuation account. All fees will be explained to you in detail prior to any advice being given and there are no ongoing commissions as our planners work on a fee-for-service basis.
QIEC Financial Planning advice is provided by My Super Future Pty Ltd (ABN 38 122 977 888) Australian Financial Services Licensee (AFSL no. 411440). The Trustee is not responsible for, and does not accept liability for the products or services or actions of My Super Future Pty Ltd. You should use your own judgement before taking up any product or service offered by My Super Future Pty Ltd.