We are now going to see the first increase to the ‘Transfer Balance Cap’ since the legislation came into effect in July 2017. While the concept seems simple enough at first glance, there will be a lot of confusion and misinformation out there!
Transfer Balance Cap to increase to $1.7 million
The Transfer Balance Cap is the total amount you can use to commence a ‘retirement phase’ pension like Account Based Pensions. Only people that have yet to commence such pensions will be entitled to for the full $1.7 million Transfer Balance Cap.
If you have already commenced a retirement phase pension, then read on as its going to get a little tricky…
The legislation was drafted so that once you commence a retirement phase pension your Transfer Balance Cap is the cap at that time plus a proportion of any future cap increases. You are allowed to commence subsequent retirement phase pensions using any cap balance. An example may make this easier to understand:
Jill commences an Account Based Pension on 1 July 2019 for $1.2 million. Her Transfer Balance Cap at that time was $1.6 million so she has $400,000 remaining in her Transfer Balance Cap. On 1 July 2021 she would like to commence a second Account Based Pension using her $500,000 accumulation balance as the general Transfer Balance Cap has increased by $100,000 to $1.7 million.
As Jill has used up 75% of her Transfer Balance Cap ($1.2 million / $1.6 million) she is only entitled to 25% of the $100,000 Transfer Balance Cap increase (= $25,000). Therefore, Jill’s adjusted remaining balance of her Transfer Balance Cap is $425,000 ($400,000 + $25,000).
Importantly, Jill’s overall Transfer Balance Cap is now $1.625 million, which means even if she decided to fully commute her existing Account Based Pension on 30 June 2021, she would not have been eligible for the higher $1.7 million Transfer Balance Cap.
As you can see, ultimately everybody is going to end up with their own unique Transfer Balance Cap over time. To make this harder to administer only individuals can directly accessed their Transfer Balance Cap from places like their MyGov account or through their personal tax agent. SMSF administrators, retail/industry super funds, financial planners etc currently do not have access this information.
New Contribution Caps from 1 July 2021
The Government has also announced new contribution caps from 1 July 2021.
Concessional (tax deductible) contribution cap will increase to $27,500 for everybody for the 2021/2022 financial year. If you are looking to claim any unused portions of your 2018/2019 and 2019/2020 concessional caps – remember those caps will be based on $25,000. This ‘carried forward’ concessional contribution rule works on a 5 year rolling basis for members with super balances below $500,000.
Non-concessional (after-tax) contributions will increase to $110,000 for 2021/2022 financial year. If you have triggered the ‘three (3) year bring forward’ rules during 2019/2020 or 2020/2021 financial years, you have locked in the $300,000 and are not eligible for the increased contribution cap until your 3 year period ends.
The increase to the Total Super Balance will also have an impact on your ability to make non-concessional contributions. For members age under 65:
Current Rules up to 30 June 2021:
|
Your Total Super Balance @ 30 June 2020 |
Bring Forward Available? |
|
Less than $1.4 million |
Access to $300,000 over 3 years |
|
$1.4 million but less than $1.5 million |
Access to $200,000 over 2 years |
|
$1.5 million but less than $1.6 million |
No bring forward – $100,000 NCC annual cap |
|
$1.6 million or more |
Nil cap |
Rules from 1 July 2021:
|
Your Total Super Balance @ 30 June 2021 |
Bring Forward Available? |
|
Less than $1.48 million |
Access to $330,000 over 3 years |
|
$1.48 million but less than $1.59 million |
Access to $200,000 over 2 years |
|
$1.59 million but less than $1.7 million |
No bring forward – $100,000 NCC annual cap |
|
$1.7 million or more |
Nil cap |
Remember to carefully check what contributions have already been made for the 2018/2019, 2019/2020 and 2020/2021 financial years as exceeding your contribution caps may lead to unintended tax consequences.
We strongly suggest that you speak to your accountant or financial planner to get a clearly understanding of how these changes may impact.
How can we help?
If you would like to know more about Superannuation or Retirement Planning, please feel free to give Jason McLaren a call on 07 3338 8966. Jason is a licenced financial planner and can provide you with personalised financial advice through our other business Flow Financial Planning.
You can keep up to-date on all things Super by following us on Facebook.
The information contained in this article is general in nature and does not take into account your personal situation or objectives. You should not act on this information in any way before seeking professional advice.
