Author: Emma Partenza, Manager, TAG Financial Services
The general Transfer Balance Cap (TBC) is increasing on 1 July 2023 to $1,900,000 (from $1,700,000). This is the second increase since its introduction on 1 July 2017.
Every pensioner will not automatically get a $200,000 increase in their personal TBC.
Who does this apply to?
Members already in receipt of retirement phase income streams (and the pension value is less than the member’s personal TBC) will not see a full $200,000 automatic increase in the amount of their cap. But rather, it will increase by the members unused cap portion percentage. The ATO looks at a pensioner’s highest ever TBC amount (since 2017) to determine their proportionate increase entitlement.
Should pensioners be thinking about commuting pensions to take advantage of a higher personal TBC of $1.9M, unfortunately this will not give them eligibility, as a cap has already been triggered and a balance utilised.
The full $1.9M TBC is only available for member’s who have not commenced a retirement phase income stream before 1 July 2023.
Strategies
The number 1 question currently being asked is – “should all pension commencements now be deferred until 1 July 2023”?
This question is applicable to both pensioners who have not yet commenced a retirement phase income stream and those who have but have the ability to commence further income streams in their funds.
The answer really depends on the pensioners personal situation.
On one hand, for members with greater balances, they would be able to put more of their superannuation benefit into a tax free retirement phase income stream.
And on the other, deferral of pension commencements will also deprive the SMSF of an exempt current pension income (ECPI) claim and reduction in income tax. Pensioners and their advisors need to analyse the loss of ECPI claim versus obtaining an additional $200,000 in their TBC.
Any member who has yet to start a pension may consider deferring this until 1 July 2023 to access the full $1,900,000 TBC.
Reporting requirements
It’s important to note that all transfer balance account event reporting should be done by 30 June 2023, to ensure the ATO indexation calculations are done correctly and pensioners receive indexation based on what they’re entitled to. The ATO advise the indexation amounts for pensioners and this will be available from 11 July 2023.
We will see members with personal TBC in the range of $1,600,000 and $1,900,000 from now on.
A reminder as well we now have an obligation to report quarterly, effective 1 July 2023.
Any questions?
If you have any questions about pension planning, please contact us on 03 9886 0800 or via email.
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If you want to hear more about the TBC changes, we will be delving into the client strategies options at our upcoming Superannuation Strategies Seminar.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.