The ATO has confirmed that the general Transfer Balance Cap (TBC) will be indexed to $1.7 millionfrom 1 July 2021. This represents an increase of $100,000 from the current general TBC of $1.6million.
The Australian Bureau of Statistics All Groups Consumer Price Index (CPI) for the December 2020quarter needed to have increased to 116.9 or higher for indexation to occur. The CPI figure, whichwas released on 27 January 2021, was 117.2.
The general TBC limits how much superannuation can be transferred from an ‘accumulationaccount’ to a tax-free 'retirement phase' account over a person’s lifetime.
It is important to note that indexation of a client’s personal TBC occurs on a proportional basisbased on the highest ever balance in their Transfer Balance Account (TBA).
Calculating the unused cap percentage and TBC increase
The unused cap percentage is determined by identifying the client’s highest ever balance in their TBA and their TBC, and is calculated as follows:
Unused cap % = (1 – (Used cap/TBC)) x 100
- Used cap – is the highest value in the transfer balance account
- TBC – is the transfer balance cap at time of that highest value.
This percentage is rounded down to the nearest whole number.
A client’s TBC increase is then determined as follows:
TBC increase = Unused cap % x indexation increase ($100,000)
John has a retirement phase income stream which was commenced in October 2018 with $1m,which was credited to his TBA.
Although there was a debit in July 2019 of $200,000 when he commuted $200,000 back intoaccumulation phase, the highest ever balance in his TBA was $1m. This means his unused cap is$600,000. His unused cap percentage and TBC increase is:
- (1 – ($1m/$1.6m)) x 100 = 37% (rounded down to nearest whole number)
- 37% x $100,000 = $37,000
John’s new personal TBC after indexation will be $1.637 million.
For more information, refer to the ATO website on the indexation of the general transferbalance cap