ATO flags TBC indexation awareness

Transfer balance cap indexation

The ATO is making preparations for the indexation of the transfer balance cap which may be triggered as early as 1 July 2020.

The ATO has announced it is already looking ahead in preparation for the first round of indexation that will be applied to the transfer balance cap (TBC) and has recommended super fund trustees also be aware of the situation.

Speaking at the recent 2019 Association of Superannuation Funds of Australia National Policy Roadshow, ATO superannuation and employer relations deputy commissioner James O’Halloran highlighted the fact the indexation measure could occur on 1 July 2020 or 1 July 2021.

“However, it is important to note that this will depend on the December 2019 indexation rate and if it reaches 116.9 index points,” O’Halloran said.

“The legislation provides that the general TBC is indexed in increments of $100,000 if the indexation rate reaches a prescribed figure, that is, this is calculated using a formula set out in the law.

“While it may be more likely that indexation will occur on 1 July 2021, you should start considering what this may mean for funds and members.”

He acknowledged the additional complexity the move would contribute to the current system.

“Once indexation of the general transfer balance occurs, there will be no single personal TBC which applies to all your members with a retirement-phase income stream, as potentially each member will have their own personal TBC,” he noted.

A member’s TBC will be determined by when they begin their retirement-phase income stream, which can lead to each member having their own individual cap, he said.

“An individual who starts their first retirement-phase income stream on or after indexation will have a TBC of $1.7 million,” he noted.

“An individual who already had a TBC account and had equalled or exceeded the $1.6 million TBC at any stage won’t be entitled to indexation and their personal TBC will remain at $1.6 million.

“For everyone else, we’ll identify the highest-ever balance in their transfer balance account and use this to calculate the proportional increase in their TBC and apply the new personal TBC to their affairs going forward.

“These individuals will have a personal TBC somewhere between $1.6 million and $1.7 million.”

He confirmed the ATO will be alerting trustees if indexation will apply on 1 July 2020 as soon as it can after the indexation figure is released.

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