Total Super Balance and Transfer Balance Cap Indexation
Along with increasing term deposit and savings interest rates, one of the few benefits of the recent rise in inflation is that some important superannuation thresholds are increasing from 1 July 2023.
Total Superannuation Balance
The Total Superannuation Balance (TSB) is, put simply, the total amount that a person has in super, and is measured as at 30 June each year.
A person’s TSB has implications for eligibility to make certain types of contributions. One of those is non-concessional (after tax) contributions. Currently (prior to 1 July 2023), a person with a TSB of more than $1.7 million has a non-concessional contributions cap of nil. For a person with a TSB of more than $1.7 million, although non-concessional contributions can still be made (provided the person is less than 75), the tax consequences of doing so are quite punitive.
From 1 July 2023, due to indexation of the TSB threshold, the limit below which non-concessional contributions can be made without those punitive tax consequences will increase to $1.9 million. This potentially allows additional monies to be contributed for super, for those only slightly over the old threshold of $1.7 million.
Transfer Balance Cap
The other important threshold that is increasing from 1 July 2023 due to indexation is the Transfer Balance Cap (TBC). This cap is also increasing from $1.7 million to $1.9 million.
The transfer balance cap refers to the amount which a person can transfer to a retirement phase pension. For example, Terry has recently retired, he has never had a retirement phase pension before, and wants to commence one in his SMSF. He currently has $2 million in an accumulation account. If Terry commenced a pension on 20 June 2023, he would be able to start a pension for $1.7 million, leaving $300,000 in an accumulation account. However, if he waited a few days and commenced a pension on 1 July 2023, his maximum pension balance could be $1.9 million.
General TBC v Personal TBC
Whilst the General TBC will increase from $1.7 million to $1.9 million on 1 July 2023, for anyone who has had a retirement phase pension since 1 July 2017, the cap will be different. This is known as the Personal TBC.
An individual’s Personal TBC depends upon how much of the cap has been used by that individual since 1 July 2017. The calculation of that indexation for anyone who has had such a pension since that time can be quite complex, and is beyond the scope of this article.
Broadly speaking, however, the indexation depends on the extent to which a person had used up their cap any time between 1 July 2017 and 30 June 2023. For example, assume that Geraldine commenced a retirement phase pension on 1 July 2017 for $1.6 million, which was the maximum at that time. On 1 July 2023, Geraldine will not be entitled to any indexation of her Personal TBC, even if she had since stopped that pension.
As another example, let’s say Liz commenced a retirement phase pension for $850,000 on 1 July 2022, which was half of the applicable General TBC that existed at the time. On 1 July 2023, she will be entitled to indexation of half of the increase in the General TBC, or $100,000. Her personal TBC on 1 July 2023 will be $1.8 million.
If you have any questions about any of the above and would like further information, please contact our office on 1300 363 866 to speak
with our Self-Managed Superannuation Specialist team.
McConachie Stedman Financial Planning is an Authorised Representative of Wealth Management Matters Pty Ltd ABN 34 612 767 807 | AFSL 491619