What is the Transfer Balance Cap?
The Transfer Balance Cap refers to a limit set on the total amount of super you are able to rollover into a tax-free retirement account. Following legislation changes on 1 July 2017, the current cap was set at $1.7 million but is likely to change to $1.9 million on 1 July 2023 (subject to the approval of the Government).
- The transfer balance cap is managed by the ATO and is subject to change when it is indexed in the future.
- The cap is inclusive of any death benefits you may take as a pension.
- The cap does not apply to earnings made in your investments once in the retirement phase therefore if your balance exceeds $1.7 million, you do not need to action any changes. However if you do have a balance greater than $1.7 million in assets that you are retiring with, you can leave any amount over the $1.7 million in your super account.
- The cap is inclusive of funds in all your accounts in the tax-free retirement phase.
What happens if you exceed the Transfer Balance Cap?
If the amount you transfer into your tax-free retirement account(s) exceeds the your cap, then you will have an ‘Excess Transfer Balance’. The excess balance is calculated as the sum of the dollar amount that exceeds your personal transfer balance cap and any earnings made on the excess amount.
On the occasion where you find yourself exceeding your personal transfer balance cap, and having an excess transfer balance, you need to:
1. Transfer the excess transfer balance out of your accounts in the tax-free retirement phase.
2. Pay the ‘Excess Transfer Balance tax’, following 1 July 2018, the tax rate is set at 15% for the first time you exceed the transfer balance and increases to 30% for additional occurrences.
Upcoming legislation changes
Subject to the approval of the Government, the Transfer Balance Cap is set to increase to $1.9 million on 1 July 2023.
It is important to note that if you have already utilised your transfer balance cap prior to this date then you will not be eligible for the $200,000 increase to the cap. Therefore, those who have not commenced the retirement phase of their income stream before 1 July 2023, will be eligible for the benefit of the increased transfer balance cap.
Where can I access my personal Transfer Balance Cap details?
On the ATO section of your myGov account, you should be able to view all the relevant transfer balance cap information details applicable to you.
Additionally, you should be able to view and access your details on the portal if you are planning on rolling over your funds into the retirement phase after 1 July 2023.
What does this mean for you?
An increased balance transfer cap is great news! Having a larger threshold for non-taxed funds means that you are entitled to up to an extra $200,000 in untaxed funds in your tax-free retirement account. This means more money to support a comfortable retirement for you.
To better understand what these changes mean for you, speaking to a financial advisor is a good starting point. Additionally, if you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.
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