by Alex Polorotoff
The ATO recently announced the indexation of the General Transfer Balance Cap (TBC) to $1.7 million which will occur on 1 July 2021. As the ATO indicated, the difficulty for practitioners will be that “once indexation of the general transfer balance occurs, no single TBC will apply to all individuals. Instead, individuals will have a personal TBC somewhere between $1.6 and $1.7 million.
What is the transfer balance cap?
The TBC is a cap on the lifetime limit on the total amount that can be transferred into retirement phase income streams. The current cap is $1.6 million and applies to all of the individual’s superannuation funds, which they can view in ATO online.
How will indexation impact my clients
Individuals who start their first retirement phase income stream on or after 1 July 2021, will have a TBC of $1.7 million. Those who commenced a retirement phase income stream prior to this will need to calculate their own TBC.
Anyone who has already met their current TBC of $1.6 million will not be entitled to indexation. Hence, their TBC will remain at $1.6 million. Individuals who have started a retirement phase income stream, but have not met their current cap, will be entitled to indexation on a proportional basis.
For example, Stevie started an Account Based Pension on 1 July 2019 for $800,000. His TBC at the time was $1.6 million so he has only utilised 50% of his cap. Due to some shrewd investment decisions, over the next two years his pension balance increases to $1 million. This increase in his pension is not an event which counts towards his TBC, so he has still only utilised 50% of his cap. On 1 July 2021, he will be entitled to a proportional amount of indexation to his cap, based on the available cap he has immediately prior to that date. So for Stevie, who at that time had 50% of his cap available, he is entitled to 50% of the indexation amount being $50,000 (i.e. 50% of the $100,000 increase). His new TBC is $1.65 million of which he has already utilised $800,000.
The ATO maintains a register of the events that impact an individuals’ TBC however, this is based on information reported to the ATO by tax agents or individuals themselves. The ATO has advised that they will calculate the increase to each individual’s TBC on 1 July but it will only be available to view for tax agents and individuals via online services from that point on.