In the 2016/17 Budget it was announced that from 1 July 2017 the total amount of superannuation that can be transferred into a tax-free pension phase account will be capped at $1.6 million.
The cap will be indexed in $100,000 increments in line with the consumer price index (CPI).
Superannuation savings accumulated in excess of the cap can remain in a superannuation account in accumulation phase, where the earnings will continue to be taxed at the concessional rate of 15 per cent.
An apportionment approach will be used to determine how much cap space an individual has available. For example, if an individual has previously used 75 per cent of their cap they will have access to 25% of the current (indexed) cap.
Subsequent earnings on balances transferred into retirement phase will not be restricted.
Individuals with accounts already in retirement phase before 1 July 2017 with a balance in excess of $1.6 million will need to either:
o transfer the excess amount to a superannuation account in accumulation phase; or
o withdraw the excess amount from their account.
Individuals who breach the cap will be subject to additional tax, similar to the tax treatment that applies to excess non-concessional contributions.
Transfer Balance Account
The transfer balance account works in a similar way to a bank account balance.
It is possible for an individual’s transfer balance account to have a negative balance if their debits exceed their credits.
Transfers to the retirement phase and the commencement of an income stream (pension) give rise to a credit in the transfer balance account. The increase/decrease in market value of assets in the cap is excluded.
Commutation of the pension would give rise to a debit in the transfer balance account. Commutation is at current market value, not value when commenced. This can lead to a negative balance in the transfer balance account and ensures any increases in asset values since pension commencement are not lost on commutation.
Ordinary pension payments do not count as debit entries for the purposes of the transfer balance account.
If you would like more information please contact Timothy Kane at firstname.lastname@example.org.