Introducing a $1.6 million transfer balance cap

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June 1, 2022
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Article published by RJS Wealth Management Pty LtdDesigned to limit the total amount of superannuation (super) savings that can be transferred into a tax-free retirement account, the $1.6 million transfer balance cap (indexed for inflation in $100,000 increments) is applied to each individual and will take effect from 1 July 2017.How will the $1.6 million transfer balance cap work?Applying to both current retirees and to individuals yet to enter their retirement phase, this new reform will require ongoing monitoring of pension balances. And in many instances the need to take action well before these reforms commence.“If an individual exceeds their transfer balance cap, the Commissioner of Taxation (the Commissioner) will direct an individual’s superannuation income stream provider to commute (reduce) their retirement phase interests by the amount of the excess (including excess transfer balance earnings) to rectify the breach. The individual will also be liable for excess transfer balance tax on their excess transfer balance earnings to neutralise the benefit received from having excess capital in the earnings tax exempt retirement phase. Breaches for the 2017-18 financial year attract a single tax rate. The tax rate on excess transfer balance earnings increases for second and subsequent breaches occurring in the 2018-19 financial year or a later financial year.”Note: Capital gains tax relief is available for a super fund which moves an asset or assets from pension phase to accumulation phase, in order to satisfy the $1.6 million transfer balance cap rules taking effect from 1 July 2017.Note: If you fully utilise your $1.6 million transfer balance cap when moving in to retirement, or fully utilise it at a later date, then you cannot take advantage of the periodic $100,000 indexed increases in the transfer balance cap.

super-pension-limits

Do I need to take action?Australians holding pension balances of more than $1.6 million will be forced to take action before 1 July 2017 to avoid excess tax. Those who fall into this category have two choices:

  1. You can transfer the excess above $1.6 million into an accumulation account within your existing super fund, or another super fund, OR
  2. You can withdraw the excess above $1.6 million out of the super system.

Superannuation savings in accumulation phase are subject to 15{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} earning tax. Subsequent earnings on the remaining $1.6 million pension balance while in pension phase, from July 2017, will not be required to be withdrawn.Superannuation can be complicated. To find out how these and other superannuation reforms affect you, what action you should take or to simply ask a question, contact an RJS Wealth Management Professional on 1300 256 526. In many circumstances, it may be ideal to take action now.Related articles:

Source: SuperGuide.com.au, MLCThis blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

June 1, 2022

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