The SMSF Association has described any action to prevent further indexation of the general transfer balance cap (TBC) from being implemented as a brave move in light of the current economic environment.
“There’s been speculation that the government may make moves in the budget to freeze [the transfer balance cap] at $1.7 million. But for them to do that they’re going to have to intervene,” SMSF Association chief executive Peter Burgess told delegates at the industry body’s National Conference 2023 held in Melbourne recently.
“I think it would be a bold move for the government to do that. Given all of the commentary out there in the community right now about the cost-of-living increases and the issues [it is] causing.”
Further preventing the next round of TBC indexation would not be a straightforward exercise as a change to the Income Tax Assessment Act would be needed and an amendment of this nature would be contrary to the original policy intent, Burgess said.
“This cap is tied to the CPI (consumer price index), which means that the original idea was that this cap would always increase with cost-of-living increases,” he said.
“It’s the reason why in our pre-budget submission we urged the government to allow this cap to be indexed as per the original policy intent.”
According to Burgess, should the TBC be raised to $1.9 million as a result of the indexation measure, the proportionate application of the increase will highlight an anomaly in the myGov portal and may increase the record-keeping advisers would be required to perform for their clients.
“This calculation [as to the TBC indexation entitlement], if you have clients who have already started a pension, come 1 July this year the ATO will calculate the indexation [and it] will calculate your clients’ full transfer balance cap,” he noted.
“But of course advisers don’t have access to that information [via the myGov platform] so you may find yourself having to do a calculation of your clients’ transfer balance cap.”
The CPI figures published for the December quarter 2022 facilitated a potential increase in the general TBC from its current level of $1.7 million to $1.9 million.
