Overview
From 1 July 2021, the general transfer balance cap will be indexed to $1.7 million. The personal transfer balance cap for individuals will vary and is dependant upon their circumstances, ranging from $1.6 million and $1.7 million.
This article will cover the following 3 scenarios
- When the transfer balance cap will be $1.7 million.
- When the transfer balance cap will range between $1.6 million and $1.7 million.
- When the transfer balance cap will remain at $1.6 million.
For further information regarding the indexation, visit the Indexation of the general transfer balance cap document released by the ATO.
When the transfer balance cap will be $1.7 million.
Members starting a retirement phase income stream for the first time on or after 1 July 2021 will have a transfer balance cap of $1.7 million.
Example: A member begins their first retirement phase income stream on 17 July 2021. Their personal transfer balance cap will be $1.7 million.
When the transfer balance cap will range between $1.6 million and $1.7 million.
When members have not used the full amount of their transfer balance cap, the transfer balance cap will be proportionally indexed based on the highest ever balance of the transfer balance account.
This is calculated by first identifying the highest ever balance of the transfer balance account, then multiplying the unused cap percentage by $100,000. Please see the following table as a guide for the calculation of proportional indexes for your reference.
|
If your highest transfer balance was between |
your unused cap percentage will be between |
your personal transfer balance cap will increase between |
your personal transfer balance cap after indexation will be between |
|---|---|---|---|
|
$0.00 and $159,999.99 |
100% and 91% |
$100,000 and $91,000 |
$1,700,000 and $1,691,000 |
|
$160,000 and $319,999.99 |
90% and 81% |
$90,000 and $81,000 |
$1,690,000 and $1,681,000 |
|
$320,000 and $479,999.99 |
80% and 71% |
$80,000 and $71,000 |
$1,680,000 and $1,671,000 |
|
$480,000 and $639,999.99 |
70% and 61% |
$70,000 and $61,000 |
$1,670,000 and $1,661,000 |
|
$640,000 and $799,999.99 |
60% and 51% |
$60,000 and $51,000 |
$1,660,000 and $1,651,000 |
|
$800,000 and $959,999.99 |
50% and 41% |
$50,000 and $41,000 |
$1,650,000 and $1,641,000 |
|
$960,000 and $1,119,999.99 |
40% and 31% |
$40,000 and $31,000 |
$1,640,000 and $1,631,000 |
|
$1,120,000 and $1,279,999.99 |
30% and 21% |
$30,000 and $21,000 |
$1,630,000 and $1,621,000 |
|
$1,280,000 and $1,439,999.99 |
20% and 11% |
$20,000 and $11,000 |
$1,620,000 and $1,611,000 |
|
$1,440,000 and $1,599,99.99 |
10% and 1% |
$10,000 and $1,000 |
$1,610,000 and $1,601,000 |
|
$1,600,000 or more |
0% |
nil |
$1,600,000 |
Simple Fund 360 will calculate the TBAR balance for each member account (from 30/06/2017 or first TBAR entry) for a member account to 30/06/2021 for each entry to determine when the highest balance existed. See the below example:
| Date | Narration | Value | Balance |
| 30/06/2017 | Existing Pension | 500,000 CR | 500,000 |
| 02/08/2017 | New Pension | 700,000 CR | 1,200,000 |
| 01/07/2018 | Commutation | 300,000 DR | 900,000 |
| 01/07/2019 | New Pension | 100,000 CR | 1,000,000 |
If the member had the highest balance as eg. $1,200,000 up to the end of 2021 financial year (can be at any date) and the maximum indexation is $100,000 the proportion is worked out by:
1 - (1,200,000 / 1,600,000) (Highest balance /used cap limit for the year of highest balance) (Rounded down to the nearest whole number)
= 0.25 X 100,000(indexation amount)
= 25,000
The members personal transfer balance cap will be 1,625,000 (1.6mill + 25,000)
When the transfer balance cap will remain at $1.6 million.
If a member has a transfer balance account prior to the indexation, and at any time between 1 July 2017 and 30 June 2021 the balance of the transfer balance account was $1.6 million or more then the transfer balance cap will remain at $1.6 million.
Exceeding the transfer balance cap before indexation.
Example:
The transfer balance cap on 1 July 2017 was exceeded by $4,000 and the excess was commuted before 31 December 2017 under the transitional rules. Just before indexation, the balance of the transfer balance account is $1.6 million. In this instance, the personal transfer balance cap remains at $1.6 million
Highest ever balance of $1.6 million before indexation
Example:
A Pension began in an SMSF valued at $1.6 million on 1 December 2017. In the instance that the balance was reduced by commutations/ taking payments as lump sum commutations, despite the balance being reduced, the member wouldn't be entitled to proportional indexation of their personal transfer balance cap. The amount that the balance had been reduced by, say for example $400,000, will be the cap space available to start a new retirement phase income stream.
This extends to members that once had a balance of $1.6 million that have fully commuted the balance to zero in the hopes of commencing a new retirement phase income stream after 1 July, 2021 and taking advantage of the new indexation balance cap. In this instance too, the cap would remain at $1.6 million because the $1.7 million cap only applies to members commencing a retirement phase income stream for the first time.
The Indexation in Simple Fund 360
The Indexation new cap limit entry will be posted in the TBAR dashboard in the 2021-2022 Financial Year. The entry will be recorded once the close period is performed for the 2021-2022 financial year from the Period Compliance screen.
The TBAR entry will appear as below
For the funds that have not performed 'Close Period' that have been set up in the 2022 financial year or migrated funds will need to use the ‘Calculate Personal TBC’ button in the TBAR dashboard to trigger the indexation cap limit entry.
In the event of the current system calculated cap limit does not agree with ATO provided personal cap limit, users can manually update the cap limit by selecting Edit and editing the indexation entry.
'Calculate Personal TBC' button
From the 2022 Financial year onwards, a Calculate Personal TBC button will appear in the Transfer Balance Dashboard. Clicking this button will re-run the Close Period TBAR Cap Indexation Calculation.
There are potentially 4 scenarios that would require you to use this function:
- Migrated fund from SF desktop: Given that Simple Fund Desktop will not have the indexation logic implemented, this will look at each members TBAR history and run the indexation calculation.
- Where you have edited (manually adjusted) the cap indexation entry incorrectly and want to reinstate the system calculation
- The fund has been finalised and lodged for 2021FY and you need missed an TBAR entry in a prior year, where you do not want to reopen the prior period(s).
- You have received a new client in the 2022FY
Frequently asked questions
1. What if relevant TBAR entries aren't in Simple Fund 360?
Manual adjustments can be added to the Transfer Balance Dashboard. Please see the following article for assistance with this process
2. What if I closed a period, then realised that a TBAR event was not added in that prior period?
Users have the ability to add a missing TBAR event via the Transfer Balance Dashboard. From within the Transfer Balance Dashboard the relevant financial year can be selected from the drop-down menu and an adjustment can be added.