9.1 What is the transfer balance cap (TBC)

The general transfer balance cap limits the amount a member can move into a retirement phase pension. Any amounts exceeding the cap will need to be moved out of retirement phase and may potentially trigger a penalty.

Transfer balance cap

The transfer balance cap commenced on 1 July 2017. The cap is indexed at the Consumer Price Index (CPI) each year and rounded down to the nearest $100,000.

Year	Transfer balance cap
1 July 2017 - 30 June 2021	$1.6 million
1 July 2021 - 30 June 2023	$1.7 million
1 July 2023 onward	$1.9 million

A member's personal transfer balance cap (PTBC) differs depending on their personal circumstances including the year in which they first had a transfer balance cap.

The indexation of the general transfer balance cap may impact other caps and limits:

• ability to make non-concessional contributions
• ability to use the bring-forward provisions for non-concessional contributions
• eligibility for the co-contribution
• eligibility for the tax offset for spouse contributions
• the defined benefit income cap

Source: ATO

This technical resource is intended for the use of financial advisers only. It is current as of the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

9.2 Transfer balance account

A transfer balanced account is a record of all transactions that count towards a member's personal transfer balance cap (PTBC) for certain types of superannuation income streams. The transfer balance cap for retirement phase income streams commenced at $1.6 million on 1 July 2017, increased to $ 1.7 million on 1 July 2021 and further indexed by $200,000 $1.9 million on 1 July 2023.

The balance of the transfer balance account will indicate whether a member has exceeded their personal transfer balance cap. Members will have only one transfer balance account for all their transactions until their death.

When does a transfer balance account commence?

A transfer balance account commences when:

• a member commences their first retirement phase income stream after 1 July 2017
• a member already has a retirement phase income stream on and after 1 July 2017

Transfers into and out of retirement phase are generally referred to as credit or debit events. The transfer balance account keeps a record of all transactions as this will determine whether a member has exceeded their personal transfer balance cap.

A member continues to have a transfer balance account even if the member subsequently ceases to be a retirement phase recipient of a superannuation income stream. A member only ceases to have a transfer balance account when they die.

A transition to retirement income stream (TRIS) is not considered a transfer to retirement phase unless a superannuation income stream benefit is currently payable from it, and the member:

• is 65 years old or older, or
• has met a relevant condition of release with a nil cashing restriction (retirement, terminal medical condition, permanent incapacity) and has notified the superannuation provider for the TRIS of that fact, or
• receives TRIS as a reversionary beneficiary

From 1 July 2017, superannuation income stream providers are taxed on earnings from assets supporting a TRIS that is not in retirement phase.

The age pension (or other types of government assistance payments) and a pension received from a foreign superannuation fund are not included in a member's transfer balance account because such pensions are not superannuation income streams.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should be referred to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

9.3 Transfer balance account - Credits

Section 294-25 of the Income Tax Assessment Act 1997, sets out when a member in retirement phase and receiving a superannuation income stream will receive a credit into their transfer balance account.

The following events will trigger a credit:

• superannuation income streams commenced prior to 1 July 2017 and the member continues to receive the income after this date - this includes both reversionary and non-reversionary death benefit income streams
• superannuation income streams commenced after 1 July 2017, including both reversionary and non-revisionary death benefit income streams.
• when a transition to retirement stream starts to be in retirement phase
• limited recourse borrowing arrangements - repayments
• excess transfer balance earnings

Note that whilst the credits increase the transfer balance account this will eventually reduce the available personal cap space.

For further detail please refer to LCR 2016/9 Superannuation reform: transfer balance cap

This technical resource is intended for the use of financial advisers only. It is current at the date of publication but may be subject to change. This publication has been prepared without considering a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

9.4 Transfer balance account - debits

Section 294.80 of the Income Tax Assessment Act 1997 sets out when debits arise in a transfer balance account and the amount of the debit.

A debit may arise in a member's transfer balance account from:

a commutation of a superannuation income stream in the retirement phase

structured settlement contributions

an event that results in a member's superannuation interest being reduced (e.g., fraud, dishonesty, bankruptcy)

a payment split (divorce or relationship breakdown)

a superannuation income stream failing to comply with the pension or annuity standards under which it is provided

a superannuation income stream provider failing to comply with a commutation authority in respect of a particular superannuation income stream

other circumstances as provided for by the regulations

Commutation

A commutation of a superannuation income stream occurs where the member consciously and validly exercises their right to exchange some or all of their entitlement to receive future superannuation income stream benefits for an entitlement to be paid a superannuation lump sum.

A commutation also occurs where a superannuation income stream provider converts superannuation income stream entitlements to a superannuation lump sum in compliance with a commutation authority issued under subdivision 136-B of Schedule 1 of the TAA in respect of that superannuation income stream.

Where the superannuation income stream is commuted in full, the superannuation income stream ceases. Where the superannuation income stream is partially commuted the value of the superannuation interest supporting the superannuation income stream is reduced. The superannuation lump sum that arises from a commutation may be cashed out of the superannuation system or can be retained within the superannuation system subject to the cashing rules for superannuation death benefits.

When a superannuation income stream is fully or partially commuted, a debit arises in the member's transfer balance account at the time they receive the superannuation lump sum, not at the time that they instruct their superannuation income stream provider to commute a superannuation income stream. For instance, if a member instructs their superannuation income stream provider to commute a superannuation income stream on 1 July 2019 and due to processing times, the superannuation income stream provider commutes the superannuation income stream to a superannuation lump sum on 7 July 2019, the debit arises on 7 July, not 1 July 2019.

Structured settlements

Compensation or damages received for a personal injury a member suffered that is contributed to a complying superannuation plan may result in a debit to their transfer balance account.

The contribution must arise from:

a settlement of a personal injury claim that is based on the commission of a wrong, or a right created by statute, effected by a written settlement agreement between the parties

settlement of a personal injury claim arising under an Australian workers compensation law, or

the order of a court made in respect of a claim that is based on the commission of a wrong, or a right created by statute (not including a court order approving or endorsing a settlement agreement as mentioned above).

In addition:

for contributions made on or after 10 May 2006, the contribution must be covered by section 292-95, which includes requirements for the contribution to be made by a particular time and for the superannuation provider to be notified, or

for contributions made before 10 May 2006, the contribution would have been covered by 292-95 if it had been in force at that time disregarding paragraphs 292-95 (1)(b) and (d), which are in respect of timing and notification requirements

The transfer balance debit is equal to the amount of the contribution and arises at the later of when the contribution is made or when they first start to have a transfer balance account.

Example: Structured settlement

Alice is seriously injured in a car accident. She undertakes legal proceedings against the driver and is awarded a court-ordered structured settlement of $4 million on 1 July 2016. Alice contributes the $4 million into her superannuation fund, notifies her superannuation fund that this contribution is a structured settlement and commences a superannuation income stream with this amount. Immediately before 1 July 2017 (end of 30 June 2017), the value of Alice's superannuation interest is now $3.5 million due to investment returns and superannuation income stream payments made to her. Alice's transfer balance account commences on 1 July 2017 and a transfer balance credit of $3.5 million arises on this day in respect of this superannuation income stream. On 1 July 2017, a transfer balance debit of $4 million also arises in Alice's transfer balance account in respect of the structured settlement contribution. Therefore, Alice's transfer balance is negative $500,000 at the end of 1 July 2017. Alice is entitled to start another superannuation income stream with a value up to $2.1 million without exceeding her transfer balance cap ($1.6 million). Alice's transfer balance is measured at the end of a day, Alice has never had an excess transfer balance (because the relevant credit and debit both arose on the same day, 1 July 2017) and is eligible to increase her transfer balance cap by indexation in future years.

Superannuation income streams that fail to comply with the standards

In certain circumstances, a superannuation income stream may cease to be a superannuation income stream because it has failed to comply with the rules or standards under which it is provided.

One of these circumstances is when the superannuation income stream provider fails to pay the minimum amount of superannuation income stream benefits required under the regulatory rules.

Where this occurs, the superannuation income stream provider is taken not to have been paying a superannuation income stream during the income year and the income stream ceases to be a superannuation income stream. However, the credit that arose in the individual's transfer account remains due to the operation of the assumptions in section 294-50.

A debit arises in the member's transfer balance account at the time the superannuation income stream stops being a superannuation income stream in the retirement phase. The value of the debt is the value of the superannuation interest that supports the income stream just before the time the superannuation income stream stops being a superannuation income stream.

Example - Failure to make a minimum payment in the income year

Neesh commenced an account-based pension on 1 July 2017. The superannuation interest supporting the superannuation income stream is valued at $1.1 million. Neesh commences to have a transfer balance account on 1 July 2017 and receives a credit of $1.1 million to her transfer balance account on that day. The fund fails to make the minimum payment amount for the superannuation income stream for the 2017/18 income year. The consequence of this is that Neesh is taken not to have commenced a superannuation income stream on 1 July 2017. However, the assumptions ensure that Neesh continues to have a transfer balance account and the credit of $1.1 million that arose on 1 July 2017 remains. For the purposes of working out Neesh's transfer balance, the application of the assumptions in section 294-50 mean that the superannuation income stream stops being a superannuation income stream at the end of 30 June 2018 and a debit arises in Neesh's transfer balance account on that date. The debit amount is the value of the superannuation interest that supported the superannuation income stream just before it ceased to be a superannuation income stream in the retirement phase. The assumptions in section 294-50 only apply for the purposes of the transfer balance account. They do not apply for other purposes such as determining when a superannuation income stream ceases for the purposes of calculating a fund's exempt current pension income

Payment split

A member's superannuation income stream provider does not at times notify the ATO of payment splits and events that result in a reduction in the superannuation interest supporting the member's superannuation income stream¹. As such a member or their spouse in respect to the payment splits, will need to notify the ATO in the approved form if a payment split or reduction in the superannuation interest supporting their superannuation income stream occurs for a debit to arise in their transfer balance account.²

A temporary breach of the transfer balance cap can occur due to the delay between when the debit arises in the transfer balance account and when the member notifies the ATO of the debit. However, once the Commissioner is notified, the debit is applied retrospectively to remedy the breach.

Payment splits: divorce or relationship breakdown

After the event of a divorce or other relationship breakdown, superannuation interests may be split as part of the division of property. Payment splits may come about from a court order or a superannuation agreement between the parties

Different treatment arises for the purposes of a member's transfer balance account depending on whether, under the payment split, the non-member spouse is entitled to either a lump sum amount or a percentage of the member spouse's superannuation income stream benefits payable from the superannuation income stream.

If the payment split is achieved by the member spouse fully or partially commuting a superannuation income stream that is in the retirement phase to pay the non-member spouse a lump sum amount, a debit will arise in the member spouse's transfer balance account. If the non-member spouse chooses to use that lump sum amount to start a superannuation income stream, a transfer balance credit arises in their transfer balance account. These transfer balance credits and debits will be reported to the Commissioner by the superannuation provider.

Where the split is achieved by dividing the superannuation income stream benefits payable from the superannuation income stream, a credit to the full value of the superannuation interest that supports the superannuation income stream (at the time of the payment split) arises in the transfer balance account of the non-member spouse³. In these circumstances, the transfer balance credit that originally arises in the member spouse's transfer balance account in respect of the superannuation income stream is not altered.

Item 4 in the table in subsection 294-80(1), each spouse will receive a debit equal to the other spouse's respective proportional entitlement to the superannuation income stream benefits payable from the superannuation income stream. The reason for these debits is to proportionally reduce the credits that arose as a result of both the member spouse and the non-member spouse being a retirement phase recipient of the superannuation income stream as a result of the payment split.

In this case, the payment split must apply to a superannuation interest that supports a superannuation income stream that is in the retirement phase and both spouses must be retirement phase recipients of that superannuation income stream as a result of the payment split, refer to section 294-90(2).

The time at which these debits arise in the member spouse's and non-member spouse's transfer balance account is the later of4:

the operative time for the payment split

at the start of the day the member spouse or non-member spouse first starts to have a transfer balance account

Example - Payment splits
Justin has a superannuation income stream that is in the retirement phase that pays him $4,000 per month. The superannuation interest that supports this income stream is valued at $1.6 million just before 1 July 2017 (at the end of 30 June 2017). Therefore, on 1 July 2017, Justin commences to have a transfer balance account and his transfer balance is $1.6 million which is equal to his transfer balance cap. On 18 November 2017, Justin's wife Liz leaves him. The court orders that 60% of the superannuation income stream benefit payable under Justin's superannuation income stream should go to Liz. The date specified in the court order is 1 April 2018. Prior to this date, Liz did not have a transfer balance account. On 1 April 2018, Liz becomes the retirement phase recipient of a superannuation income stream and commences to have a transfer balance account. On this day, the superannuation interest supporting the income stream is valued at $1.61 million (this is not a breach of Justin's transfer balance cap as his transfer balance remains $1.6 million). Justin notifies the Commissioner of the payment split in the approved form. A transfer balance debit arises in Justin's transfer balance account on 1 April 2018 equal to 60% of the value of the superannuation interest that supports the superannuation income stream on 1 April 2018 ($966,000). A transfer balance credit of $1.61 million arises in Liz's transfer balance account on 1 April 2018. A transfer balance debit also arises in Liz's transfer balance account on 1 April 2018 equal to 40% of the value of the superannuation interest that supports the superannuation income stream on 1 April 2018 ($644,000). Because her transfer balance is measured at the end of a day, Liz has never had an excess transfer balance and is eligible to increase her transfer balance cap by indexation in future years. Justin, however, is not eligible to increase his transfer balance cap by indexation in future years as his transfer balance was equal to his transfer balance cap in the past.
Justin's transfer balance account
Date	Description	Debit	Credit	Balance
1 July 2017	Transfer balance account	0	$1.6 million	$1.6 million
1 April 2018	Payment split	$966,000	0	$634,000
Liz's transfer balance account
Date	Description	Debit	Credit	Balance
1 April 2018	Transfer balance account commences	$644,000	$1.61 million	$966,000

^{Source 1. These events include reductions to the value of a superannuation interest that support a superannuation income stream as a result of a conviction of an offence of fraud or dishonestly, or as a result of bankruptcy.2. Paragraph 294-85(1)(b) 3. The credit arises under item 1 or 2 of the table in section 294-25 at the time you start to be a retirement phase recipient 4. Subsection 294-90(4)}

^{This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.}

9.5 Excess on the transfer balance cap

If the balance exceeds the transfer balance cap on a particular day, the member has breached cap. Members who breach the cap are liable to excess transfer balance tax ¹.

Under subsection 294-30(2), a member's transfer balance at a time is the sum of the credits in their transfer balance account less the sum of their debits.

Section 294-30 of the Income Tax (Transitional Provisions) Act 1997, this provides that a member does not have an excess transfer balance in the transitional period from 1 July 2017 to 31 December 2017 if:

• the only transfer balance credits in the account in that period arose under item 1 of the table in subsection 294-25(1) of that Act (where a transfer balance credit arises where a member receives a retirement phase of a superannuation stream  just before 1 July 2017)
• the sum of those transfer balance credits exceeds their transfer balance cap, but is less than or equal to $1,900,000, and
• the transfer balance is reduced to or below the transfer balance cap within the transitional period.

The transitional provisions operate only to disregard a member's excess transfer balance for this six months period so that they do not have any excess transfer balance earnings and they are not liable for the excess transfer balance tax.

The transfer balance cap is subject to the proportional indexation in line with increases in the general transfer balance cap. However, if a  transfer balance has ever equalled or exceeded a member's transfer balance cap at the end of a day, they will permanently lose their entitlement to increase their transfer balance cap by indexation in future years.

Excess transfer balance tax

Member's are liable to pay excess transfer balance tax if they have an excess transfer balance period. Under subsection 294-230(2), an excess transfer balance period is a continuous period of one or more days where they have an excess transfer balance at the end of the day.

This amount is calculated at the end of their excess transfer balance period and an assessment will be issued to the member for the period. A member may rectify their excess transfer balance at any time by instructing the superannuation income stream provider to commute a superannuation income stream in part or in full.

Year	Excess transfer balance tax
1 July 2018 and later years	15%	the first time a member has an excess transfer balance
	30%	if the member has subsequent excess transfer balances

In determining the amount to commute, a member should take into account their original excess transfer balance, excess transfer balance earnings that will be credited to their transfer balance account and the time required for their superannuation provider to action a commutation.

Excess transfer balance earnings are calculated daily on their excess transfer balance and are credited daily to their transfer balance account until the Commissioner issues a determination or they no longer have excess transfer balance, whichever comes first. Credits for excess transfer balance earnings increases their excess transfer balance.

Though credits for excess transfer balance earnings cease to arise in a member's transfer balance account once the Commissioner has issued a determination, a member may still be liable to excess transfer balance tax in respect of excess transfer balance earnings that accrue in relation to any excess transfer balance that a member has after the determination has been issued.

Excess transfer balance determinations

The Commissioner will generally issue a member with an excess transfer balance determination at the end of the day. The Commissioner will issue a determination based on information that they hold about the member's transfer balance account (such as information reported to the Commissioner by superannuation income stream providers and transfer balance debits notified by the member).

As there may be delays in the reporting of information to the Commissioner, the determination may not be issued by the Commissioner until many months after the event.

A determination may not be issued if the member reduces their transfer balance to or below their transfer balance cap before a determination issued. If a determination is received this will stop credits for excess transfer balance earnings arising in their transfer balance account and increasing their excess transfer balance (from the date the determination is issued). However, if a credit arises in their transfer balance account after they receive a determination but before they transfer balance is reduced; excess transfer balance earnings will start to be credit to their transfer balance account gain from the date of the second credit.²

The excess transfer balance determination will state a member's 'crystallised reduction amount', which is their excess transfer balance including credits for excess transfer balance earnings to the date of the determination. This is the amount of the debit that needs to arise in their transfer balance account so that they are not in breach of their transfer balance cap.

The Commissioner has the right to amend or revoke an excess transfer balance determination at any time before a commutation authority is issued. For instance, when a determination is issued and the transfer balance subsequently changes before a commutation authority is issued, such as a member commences another pension. ²

Source 1. Modified rules apply in determining excess transfer balance for individuals who are receiving capped defined benefit income streams and child recipients of death benefit income streams. Refer to LCR 2016/10 Superannuation reform: capped defined income streams - non-commutable, lifetime pensions and lifetime annuities and LCR 2017/1 Superannuation reform: capped defined benefit income streams - pensions or annuities paid from non-commutable, life expectancy or market-linked products and subdivision 294-E for further guidance on these rules. 2. LCR 2016/9-Superannuation reform: transfer balance cap.

This technical resource is intended for the use of financial advisers only. It is current as of the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.