Pensions, Superannuation, Tax

Trustees still not clear on TBCs

Trustees still not clear on transfer balance caps

The tax implications of transfer balance caps are still not understood by many trustees, an SMSF expert says.

Transfer balance caps (TBC) have remained a cause of confusion among trustees, an SMSF expert has said.

SuperConcepts technical services and education general manager Peter Burgess said despite being in place for more than two years, the $1.6 million cap on superannuation has not been completely understood by many trustees.

Burgess noted a major misconception among trustees was that the $1.6 million cap was the total amount that could be held in superannuation.

“[Trustees] can hold more than that amount in superannuation, they just can’t transfer more than $1.6 million to the pension phase,” he said in a blog post on the AMP Capital website.

“If there’s more than $1.6 million in funds, that can remain in the accumulation phase in superannuation.”

He highlighted the assumption that it was not as tax effective to hold more than the $1.6 million cap in superannuation as another common misunderstanding regarding TBCs.

“In a superannuation fund, the tax rate is only 15 per cent, which could be lower than the tax rate applicable outside of the superannuation fund, regardless of balance,” he said.

He also pointed out the incorrect belief shared by trustees that a commutation back into accumulation phase would be required if their pension balance grew to over $1.6 million.

Some individuals in the early phases of the TBC being rolled out were mistaken in thinking their pension balance growing above $1.6 million would mean they had an excess, despite being below the threshold at the time of transfer, he said.

“That’s not how the transfer balance cap works. You’re only assessed at the time the pension commences,” he added.

“If you’re below $1.6 million at that point, then you don’t have an excess. If your pension balance grows above the $1.6 million, that doesn’t mean you have to commute the excess.”

Last month, an SMSF expert said the effect of TBCs on death benefits had added complexity to the management of SMSFs and raised compliance questions around the provision of advice.

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