Following the release of today’s CPI figure by the Australian Bureau of Statistics, the General Transfer Balance Cap (TBC) is set to increase from $1.7 Million to $1.9 Million, from 1 July 2023 – with flow-on impacts to the ability to make Non-Concessional contributions (NCCs).
Transfer Balance Cap (TBC)
From 1 July 2023, the General TBC will increase from $1.7 Million to $1.9 Million.
However, due to the proportional indexation approach that is used to calculate an individual’s Personal TBC, the amount that some individuals can transfer into retirement phase pensions will increase substantially, while for others there may be no change at all.
That is, someone who has not, and will not have, before 1 July 2023 commenced a retirement phase income stream, will enjoy the full benefit of a $200,000 increase to the TBC. On the other hand, someone who has already fully utilised their TBC before this date will not receive any personal benefit from the upcoming increase to the General TBC.
And for the many individuals in between, the level of indexation they receive will depend on their highest percentage usage – this complex minefield means it will be quite unusual for any two people in this cohort to share the same personal TBC value in the years to come.
Over the coming months, understanding the level of indexation (if any) that individuals may benefit from will be critical to identifying the potential strategy considerations that may be available to them – and the potential pitfalls that may result in less than desirable outcomes.
For example, clients considering the commencement of their first retirement phase income stream, may be better off deferring until 1 July 2023 to lock in the maximum increase to their personal TBC.
Similarly, clients who may currently be receiving a Transition to Retirement Income Stream (TRIS) will need to remain vigilant to ensure their TRIS doesn’t inadvertently convert to a retirement phase pension before 1 July 2023.
Benefits for Non-concessional contributions
Importantly, as the value of the TBC is used when applying the Total Superannuation Balance (TSB) test for various other superannuation measures, several TSB thresholds will also increase from 1 July 2023.
Among the more prominent of those measures is the TSB test that applies to an individual’s ability to make NCCs. While the Concessional and NCC caps will not directly change as a result of this increase to the General TBC, there will be flow on impacts for those individuals seeking to make NCCs from 1 July 2023 onwards.
That’s because an individual’s ability to bring-forward 2 years’ worth of NCCs, enabling a NCC of up to $330,000 in one year, is reliant on their TSB currently being less than $1.48 Million (measured on 30 June of the previous financial year).
Once an individual’s TSB exceeds this threshold, their ability to make bring-forward NCCs is diminished. So much so, that an individual’s NCC cap currently reduces to Nil where their TSB exceeds $1.7 Million.
As a result of the increase to the General TBC, these thresholds are also expected to increase from 1 July 2023.
While it’s not possible to precisely determine these figures at this stage, based on the current NCC cap remaining $110,000, these thresholds are expected to be:
|Maximum NCC cap
|From 1 July 2023
< $1.48 Million
< $1.68 Million
$1.48 – $1.59 Million
$1.68 - $1.79 Million
$1.59 – $1.7 Million
$1.79 - $1.9 Million
> $1.7 Million
> $1.9 Million
Needless to say, this too will result in further complexity being added to the strategic decision-making for individuals contemplating NCCs.
In some cases, where feasible to do so, deferring contributions until after 1 July 2023 may mean making larger contributions is possible. While for some, who are currently locked out of making contributions due to their TSB, the ability to make NCCs may become a reality once more, with the increasing of the cut-off threshold.
Note: The increase to the General TBC will also have flow-on benefits, by increasing the TSB threshold used to determine eligibility, for the spouse contribution tax offset and the Government co-contribution.
Some things won’t be changing
While the change to the General TBC may impact on how much an individual is permitted to transfer into retirement phase pensions, and may have flow on impacts to one’s ability to make NCCs based on their TSB, several other thresholds will not be changing on 1 July 2023, such as:
Recent retiree work test exemption
Catch-up concessional contributions
Disregarded small fund asset rule
SMSF Association – Policy position
If there’s one thing today’s blog highlights, it’s the seemingly unnecessary level of complexity that has been built into our superannuation system – with the potential to cause confusion, mistakes and inadvertent cap breaches by superannuants and their professional advisers.
One thing that the SMSF Association has long advocated for in this area is:
- Simplification of TBCs. The indexation of the TBC on 1 July 2021, and now in 2023 has added further complexity to the superannuation system.
The system has shifted from having a single cap of $1.6 Million to individual caps ranging from $1.6 to $1.9 million – causing confusion and increased costs across the sector.
- A reduction in the number of TSB thresholds. The introduction of multiple TSB thresholds is unnecessarily adding to the complexity of the superannuation system. This is further compounded by the fact that some of these thresholds are indexed, while others are not. This has made it increasingly difficult for individuals to understand the superannuation system and their options.
While some of the strategy considerations for certain clients are likely to revolve around deferring the commencement of an income stream, or delaying contributions, it’s important to be on the lookout for any future legislative change that may be on the horizon.
Want more strategies and insights?
While we’ve touched on some of the high level impacts and some possible strategy considerations in today’s blog, you can be sure to learn about the finer details of TBC indexation and its potential impact on a wide range of retirement planning strategies at the upcoming SMSF Association conference to be held in Melbourne next month.
Click here to secure your spot at the conference, in person or virtually!
Written by Fabian Bussoletti, Technical Manager