$1.6 million transfer balance cap
Effective 1 July 2017, the Australia Federal Government has introduced a limit to the amount of superannuation savings that any single member can have in what is now called ‘retirement phase’. This limit is referred to as the ‘transfer balance cap’ (TBC), and has been set at $1.6 million, to be indexed in line with CPI, and rounded down to the nearest $100,000.
Retirement phase – what’s included?
The following are classified as retirement phase income streams and are included in the balance of a members TBC:
- Account based income streams
- Capped defined benefit income streams
- Transition to retirement income streams (TRIS) that are in retirement phase
- Death benefit income streams including reversionary income streams.
In essence, any income stream that is generating exempt current pension income (tax exempt income) will be counted towards your TBC.
Please note that if you are currently receiving a Transition to Retirement Income Stream (TRIS) that is not in retirement phase, your TRIS will not impact the TBC. This also means that the income generated by the capital attributed to your TRIS is not tax exempt. Before 1 July 2017, your TRIS would have generated tax exempt income.
Am I in retirement phase?
In order to be considered in ‘retirement phase’, you need to have met a condition of release. It is now more important than ever to ensure that you communicate with your advisers if any of the following events happen:
- Reaching the age of 65;
- Reaching the age of 60, and ceasing a form of employment on or after the your 60th birthday; or
- Reaching your preservation age, and retiring permanently.*
*You may not be aware that you could be considered permanently retired, for the purposes of accessing a retirement phase income stream and enjoying the tax concessions that are attached. For example, you can be considered permanently retired, and still go back to work part time (i.e. work less than 10 hours per week). There is additional detail and criteria involved that your adviser will be able to assist you in determining whether you can access a retirement phase income stream.
Transfer balance account reporting
With the new restrictions on the amount that a member can have in retirement phase (the $1.6 million TBC), a new reporting regime has also been introduced to track a member’s retirement phase pension balance and a member’s total superannuation balance (i.e. your accumulation and pension balances across all superannuation funds).
Your retirement phase pension balance as at 30 June 2017 was reported to the Australian Taxation Office (ATO) via a transfer balance account report (TBAR) on or before 30 June 2018, by your superannuation fund’s administrator. The ATO will data match this to your total superannuation balance that was reported to the ATO via your 30 June 2017 super fund Annual Return.
Going forward, the ATO requires all events that affect your transfer balance account (TBA) to be reported on a timely basis. These events include, but are not limited to:
- Commencing a retirement phase income stream
- Commencing a death benefit income stream
- Commuting a retirement phase income stream
- Turning 65 years of age whilst in receipt of a TRIS that is not in retirement phase
- Personal injury (structured settlement) contributions.
When do I need to report?
The timing of the above reporting requirements will depend on your total superannuation balance (TSB), and the total superannuation balance of the other members in your SMSF.
Where all members of an SMSF have a TSB of less than $1 million, the SMSF can report this information at the same time as when the SMSF Annual Return is due.
SMSFs that have any members with a TSB of $1 million or more must report events affecting any member’s transfer balances within 28 days after the end of the quarter in which the event occurs.
For example, if you and your spouse are members of the same SMSF, and the SMSF comprises entirely of each of your retirement phase balances of $200,000 each (i.e. the SMSF balance is $400,000), but your spouse has an accumulation balance in an industry fund valued at $900,000, you will both fall into the quarterly reporting group, as one member has a TSB of more than $1 million.
The assessment of whether you fall into the quarterly or annual reporting regime is a one off assessment that applies either as at 30 June 2017, on the initial TBAR lodgement or when your first TBAR event occurs (i.e. when you commence a retirement phase pension).
For example, if you were to commence a retirement phase pension on 1 October 2018, and your TSB was $900,000, you will fall into the annual reporting group. If say, on 30 June 2019, your TSB has increased to $1.1 million, you will stay in the annual reporting group even though your TSB is now more than $1 million.
How can you help?
The most important thing for members in the new legislative regime is to communicate with your advisers, about any significant changes in your life. Below is a list of events that we recommend you notify your adviser about, as they may impact on your superannuation status or provide opportunities:
- Changing jobs
- Moving house
- Moving overseas
- Opening a new superannuation fund
- Taking a large withdrawal from your super balance
- Considering taking more than your minimum income stream payment.
In addition, you will need to provide details of any other superannuation interests you have in other SMSFs, or industry/retail (APRA) superannuation Funds so that your adviser can determine your TSB.
How can we help?
Please contact your BDO adviser if you are thinking of making any significant changes, to discuss any implications or opportunities that may arise due to any changes, or if you just need a further explanation of any of these new legislative requirements.
Disclaimer: Please be advised that the information contained in this article is purely factual in nature and does not take into account your personal objectives, financial situation or needs. The information is objectively ascertainable and, therefore, does not constitute financial product advice. If you require personal advice that takes into account of your particular objective, financial situation or needs, you should consult BDO in our licensed capacity.