Rise in Contribution and Transfer Balance Account Caps.
Welcome news in the superannuation space, with the long-awaited indexation of the contribution caps and the transfer balance cap – resulting in an increase to these caps – taking effect from 1 July 2021.
The concessional and non-concessional contribution caps are set to increase due to indexation for the first time since July 2017. Details of the current contribution caps and the contribution caps going forward are as follows:
|Contribution type||2021FY cap||2022FY cap|
|Non-concessional 1||$100,000 2||$110,000 3|
NB: You must meet the work test if you are aged 67 years or over. Contributions for those over 75 years are restricted to mandated contributions only (ie super guarantee contributions).
1 Your total super balance (TSB) determines your eligibility to make non-concessional contributions.
2 This cap applies provided your TSB is below $1.6m as at 30 June 2020
3 This cap applies provided your TSB is below $1.7m as at 30 June 2021
Bring Forward Caps
The bring forward provisions have also been extended, with the maximum amount members under age 65, as at 1 July 2021, can contribute under the non-concessional contribution cap three year bring-forward rule is also set to increase from $300,000 to $330,000 as per the following table:
|Total super balance as at 30 June 2021||Non-concessional contribution cap and bring forward available|
|Less than $1.48m||$330,000 cap over three years|
|$1.48m or more but less than $1.59m||$220,000 cap over two years|
|$1.59m or more but less than $1.7m||$110,000 cap, no bring forward period|
|$1.7m or more||$Nil|
If you have already triggered the bring-forward rule in the 2020 or 2021 years, unfortunately you will not benefit from the increase in the non-concessional cap until after your three year bring-forward period expires.
Yet to be legislated…
The proposal announced in the 2019 federal budget to extend access to the bring-forward rule to people aged between 65 and 67 years, is not yet law; and the Amendment to increase SMSF members from a maximum of four, to a maximum six is also not yet law.
We will keep you informed when the Legislation has been passed.
Wanting to make a large contribution?
If you are considering making a large contribution to super in either the 2021 or 2022FY, please get in contact with us so we can assist you in getting the timing right, and to help mitigate against you having excess contribution issues.
From 1 July 2021, the general TBC will be indexed from $1.6 million to $1.7 million.
The increase in this cap means you may be able to get more into the tax-free environment from 1 July 2021. But before you get excited, you need to understand how it works – and it’s unfortunately not simple.
The concept of the TBC was introduced in July 2017 as the upper limit you can use to start a retirement phase income stream, eg an account-based pension, or receive by way of a death benefit pension.
It doesn’t apply to transition to retirement pensions unless they move into retirement phase (ie you meet a condition of release).
When you commence a retirement phase income stream for the first time, the Australian Taxation Office (ATO) establishes a transfer balance account (TBA) to track progress against your TBC. It works on a system of debits and credits. Start an income stream, or receive a death benefit pension, and your TBA is credited with the value of the pension (a formula applied for defined benefit income streams). Stop all or part of your pension and your TBA is debited with the amount withdrawn. Pension payments are ignored.
From 1 July when the general TBC is $1.7 million, there will no longer be a single cap applying to everyone. Instead, you will have your own personal TBC of between $1.6 and $1.7 million, depending on your circumstances.
If you start a retirement phase income stream for the first time on or after 1 July 2021, you will have a personal TBC of $1.7 million. Thus, you will benefit from the full $100,000 increase in the cap.
|Example 1: Starting a transfer balance account for the first time after indexation
Graham starts his first retirement phase income stream after the general transfer balance cap is indexed on 1 July 2021.
His personal transfer balance cap is $1.7 million.
If you had a TBA before 1 July 2021, your personal TBC will be:
- $1.6 million if, at any time between 1 July 2017 and 30 June 2021, the balance of your TBA was $1.6 million or more. This is because you have used your entire cap and cannot add more to your pension even though the general TBC is increasing.
- between $1.6 and $1.7 million in all other cases, based on the highest ever balance of your TBA. As you have not fully utilised your cap, your TBC will be proportionally indexed based on the highest ever balance to your TBA – and this is where it gets complicated.
Below are some examples of how the indexation affect personal transfer balance accounts. If you have any questions, or would like us to calculate your personal transfer balance accounts, please don’t hesitate to contact us!
|Example 2: Highest balance of $1.6 million before indexation
Maryanne started a pension in her self-managed super fund (SMSF) valued at $1.6 million on 1 December 2017. On 1 July 2018, she commuted $400,000, taking her TBA to $1.2 million.
While the balance of her transfer balance account just before indexation is $1.2 million, her highest TBA was $1.6 million (when she started it), therefore Maryanne isn’t entitled to indexation, and her personal transfer balance cap remains at $1.6 million (not the indexed $1.7m).
She will have cap space available to start a new retirement phase income stream up to the value of $400,000 – taking her TBA to $1.6 million.
|Example 3: Highest balance of $1.6 million before indexation
Simon started a pension valued at $1.6 million on 1 July 2020 and has other assets in super.
He commutes his pension in full on 30 June 2021 and gets a debit of $1.6 million in his transfer balance account on that day.
The balance of Simon’s transfer balance account at the end of the day on 30 June 2021 will be nil.
Simon plans to start a new pension valued at $1.7 million on 1 July 2021 to take advantage of the new indexation balance cap.
As Simon isn’t entitled to proportional indexation of his personal transfer balance cap, it will remain $1.6 million.
If Simon starts a new pension valued at $1.7 million, he will have an excess transfer balance that he will need to commute.
He will also have to pay excess transfer balance tax.
|Example 4: Highest balance under $1.6 million before indexation
Nina started a retirement phase income stream with a value of $1.2 million on 1 October 2018.
There are no other events in Nina’s transfer balance account. The highest ever balance in her transfer balance account is $1.2 million.
Nina’s unused cap percentage is 25% of $1.6 million.
Nina’s personal transfer balance cap will by indexed by 25% of $100,000.
Nina’s personal transfer balance cap after indexation on 1 July 2021 is $1.625 million.
It is important to reiterate that this is about your TBA which records transfers into and out of retirement phase. It is not about your pension balance which reflects the effect of investment performance and pension payments.
Whether you are about to approach retirement, want to calculate your TBC before the end of the financial year, or need guidance, please feel free to get in touch.