Transfer balance cap

A limit (called the transfer balance cap) applies from 1 July 2017 to the amount of superannuation benefits that can be transferred into the retirement phase of superannuation (where earnings are exempt from tax) to commence an income stream.

General transfer balance cap

Feature	Description
Inclusions	Account based pensions/annuities Capped defined benefit income streams TTR pensions where subsequent condition of release is met (see above)
Exclusions	TTR pensions where subsequent condition of release has not been met
Impact of earnings	Earnings subsequently accrued on amounts in retirement phase not counted towards transfer balance cap
General transfer balance cap	$1.6 million lifetime limit Indexed annually with CPI and rounded down to nearest $100,000
Proportional indexation	If transfer balance cap is not fully utilised, amount of unused cap (based on highest transfer balance account value) is indexed proportionally in line with increases to general transfer balance cap
Treatment of excess	If transfer balance account exceeds cap, excess amount plus earnings must be moved back to accumulation or withdrawn as a lump sum Earnings taxed at 15% for all breaches in 2017/18. From 2018/19, earnings taxed at 15% for first breaches and 30% for second and subsequent breaches Excess transfer balance tax is levied on individual, not super fund
Special rules	Special rules apply for: capped defined benefit income streams child death benefit pensions

Transfer balance account
An individual will have a transfer balance account if they receive a retirement phase pension. A transfer balance account can be credited (increased) or debited (decreased) with transactions including:

Credits	Value of credit	Timing of credit
Existing retirement phase pensions	Value of interest as at 30 June 2017	The later of: 1 July 2017, and 12 months from date pension becomes payable (for reversionary pensions only)
Retirement phase pensions commenced on or after 1 July 2017	Value of interest at commencement, or Value at time of death (for reversionary pensions only)	The later of: pension commencement date, and 12 months from date pension becomes payable (for reversionary pensions only)
Excess transfer balance earnings	Earnings on excess transfer balance calculated from day excess occurs to the earlier of the day: ATO issues excess transfer balance determination Excess transfer balance amount (including earnings) is removed	Each day there is an excess transfer balance
Repayment of an LRBA borrowing that increases the value of a retirement phase pension	Amount equal to increased value of pension interest	The time of the repayment

Debits	Value of debit	Timing of debit
Full or partial commutation	Amount of lump sum payment	When individual receives lump sum
Personal injury contributions (see page 36)	The amount of the contribution2	The later of: pension commencement date, and 12 months from date pension becomes payable (for reversionary pensions only)
Loss arising from fraud or dishonesty	Amount of retirement phase pension reduced by loss	The time of the loss
Payment in compliance with bankruptcy notice	Amount of retirement phase pension paid to trustee in bankruptcy	The time of the payment
Payment split	Proportion of all income stream benefits to be paid to a spouse	The later of: the operative time for the payment split as defined in the Family Law Act the time the individual first has a transfer balance account

Capped defined benefit income streams

Feature	Description
Inclusions	Lifetime pensions commenced at any time Lifetime annuities commenced prior to 1 July 2017 Life expectancy pensions/annuities commenced prior to 1 July 2017 Market linked pensions/annuities commenced prior to 1 July 2017
Special value (SV)	Value of capped defined benefit income stream credited to transfer balance account. Calculated as: Lifetime pension/annuity SV = annual entitlement x 16 Life expectancy/market linked pension/annuity SV = annual entitlement x remaining term (rounded up) Where: Annual entitlement = first pension payment for year / number of days to which payment relates x 365
Impact of commutations	Where income stream is commuted, transfer balance account will be debited by: Lifetime pensions/annuities full commutation = original credit amount – previous debits relating to pension partial commutation = (original credit – previous debits) x (1 – SV after commutation/SV before commutation) Life expectancy/market linked pensions/annuities3 full commutation – SV before commutation partial commutation – SV before commutation x (1 – SV after commutation/SV before commutation)
Treatment of excess	Excess transfer balance resulting solely from capped defined benefit income stream disregarded
Defined benefit income cap	$100,000 Indexed to general transfer balance cap / 16 Cap pro-rated where pension commences or member turns 60 during financial year
Taxation of pension payments	For those aged 60 or more, or receiving a death benefit pension where deceased was aged 60 or more, pension payments that exceed defined benefit income cap subject to additional tax Pension paid from taxed source – 50% of excess included in assessable income Pension paid from untaxed source – 10% pension tax offset not payable on excess

Transition to retirement pensions

Allocated Pension – payment factors

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Capped defined benefit income streams

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