$1.6m super transfer balance cap - clarification
Clarification has been provided on the intended operation of the proposed $1.6m super transfer balance cap. The cap will inlcude:
- the value of pension accounts on 30 June 2017
- commencement of new income streams after 1 July 2017
- the value of reversionary income streams, and
- notional earnings that will accrue on excess transfer balance amounts.
Further, superannuation lump sums will no longer count towards the minimum pension repayments for an income year.
Transitional provisions will provide for capital gains tax relief on assets that are forced to be transferred from pension phase to accumulation phase.
An SMSF that has a member’s balance above $1.6m in pension phase will no longer be able to segregate assets for income tax purposes.
This measure was originally announced in the 2016/17 Federal Budget.
There could be planning opportunities available to SMSF trustees that have a balance over the $1.6m cap. If you have a balance over $1.6m and would like to know how we can help please feel free to call;
Cayle Petritsch
SMSF Specialist Advisor
T: 02 9984 7774
E: caylep@nac.com.au
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@nac.com.au
“The transfer balance cap includes the value of existing pensions, new income streams and reversionary benefits, shaping how much super you can hold in retirement phase.”
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
The Transfer Balance Cap Limits Tax-Free Pensions
The cap determines the maximum amount you can move into retirement income streams where earnings are tax free.
It Includes Multiple Components
The cap isn’t just the starting balance — it also includes new pensions, reversionary streams and certain notional earnings.
Lump Sums Don’t Count Directly Toward the Cap
While lump sums remain useful for planning, they’re excluded from the minimum pension test for the cap.
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Frequently Asked Questions
What is the transfer balance cap?
The transfer balance cap is a lifetime limit on the amount of superannuation you can transfer from accumulation into the tax-free retirement phase (for a pension), originally set at $1.6 million from 1 July 2017.
What does the $1.6 million cap include?
It includes the value of pension accounts on 30 June 2017, new retirement income streams started after 1 July 2017, reversionary income streams and notional earnings on excess transfer balances.
Do super lump sums count towards the cap?
No — superannuation lump sums do not count towards the minimum pension requirements and therefore are not directly included in the transfer balance cap calculation.
What happens if an SMSF member has more than $1.6 million already in pension phase?
Funds above the transfer balance cap must remain in accumulation phase or be commuted back, with transitional provisions to manage capital gains tax on assets forced out of pension phase.
Why is the transfer balance cap important for retirement planning?
It ensures super tax concessions are targeted to retirement income, not tax-driven accumulation, and helps prevent excessive tax-free wealth within super.
If I take money out of super as a lump sum, does that reduce my transfer balance cap?
It depends on how it’s taken. Commutations that reduce your pension balance can reduce your transfer balance account, but general lump sum withdrawals don’t count toward minimum pension payments.
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