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The $1.6 million transfer balance cap has been introduced in 2017 budget and limits the tax exemption for assets funding superannuation pensions.
This new limit on superannuation will applies from 1 July 2017 and creates additional responsibilities for SMSF trustees. The main issues you need to be aware of are:
Going over the $1.6 million transfer balance cap will require the excess amounts to be removed from the retirement phase which will likely require the commutation of the relevant pension which has exceeded the cap.
Defined benefit pensions and certain pre-2007 superannuation pensions have special rules for the transfer balance cap recognising their non-commutable nature.
Any amounts in excess of a member’s personal transfer balance cap can continue to be maintained in their accumulation account in their fund. This means if you have more than $1.6 million in super you can maintain up to $1.6 million in pension phase and retain any additional balance in accumulation phase.
How can we help?
If you are concerned that the Government’s changes to the transfer balance cap affect you, please feel free to give us a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
You can have more than $1.6 million in superannuation, but you can only have up to $1.6 million in retirement funds used to commence a retirement income stream.
If you are in the fortunate position of having more than $1.6 million in superannuation, you can leave the remainder in your accumulation account and access it if you have retired after reaching your preservation age. The fund pays 15% tax on earnings in the accumulation phase rather than 0% if it was in retirement phase.
Any superannuation transferred into retirement phase from an accumulation account to support an income stream counts as a credit towards the cap.
Repayments from limited recourse borrowing arrangements will count as a credit towards the cap (see SMSFs section below).
Income earned does not count towards the cap though.
If you breach the cap you may receive an excess transfer balance determination from the Australian Taxation Office. But regardless of whether or not you receive a determination, you are required to pay tax on the excess transfer balance earnings for every day your account is in excess.