The latest All Groups CPI figure for the December 2019 quarter has just been published, and has come in at 116.2. What this will mean for SMSF trustees is that the general transfer balance cap (TBC) of $1.6 million will remain at that level until at least 1 July 2021.
There had been some anticipation in the lead up to the release of the CPI data that an increase to, and indexation of, the TBC could be on the way, by as soon as 1 July this year.
It is a development that could have consequences for SMSF trustee retirement savings plans, as the general TBC would not only increase to $1.7 million, but there will be no single cap that applies to all individuals. Every individual will have their own personal transfer balance cap, somewhere between $1.6 million and $1.7 million, depending on their circumstances.
In a speech made at ASFA’s 2019 National Policy Roadshow, the ATO’s deputy commissioner, superannuation and employer obligations, James O’Halloran, referenced the “inevitable” indexation of the TBC, as this is a requirement contained in the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.
The legislation provides that the general TBC is to be indexed in increments of $100,000 if the indexation rate reaches a prescribed figure (and this is calculated using a formula set out in the legislation).
At the time, the start of indexation pivoted on the performance of the December 2019 CPI figure. The line-in-the-sand set by the above legislation, and which is also published in ATO guidance, had been set at 116.9. As the final CPI figure is 116.2, the TBC for now is to remain at $1.6 million, and will stay at that level until 1 July 2021.
This has now officially been announced.
While this aspect of the SMSF landscape is steady for now, the indexation of the TBC is still on the cards for the not-too-distant future. Note the indexation is only applied to an individual’s unused TBC cap percentage, meaning the indexation of the current $1.6 million TBC will have no effect (positive or negative) on people who have already used the full amount of their cap.
Trustees are also reminded that indexation of the general transfer balance cap may also change other caps and limits that apply if you:
- make non-concessional contributions to your super
- make a non-concessional contribution to your super and may be eligible for a co-contribution
- make a concessional contribution to super on behalf of your spouse and want to claim a tax offset for that contribution.
See this ATO page for a summary of how trustees could be affected when the general TBC is indexed.