ATO, Superannuation

TBC indexation poses new complications

TBC indexation

The indexation of the general transfer balance cap, which could occur in mid-2020, will result in a higher level of complexity for trustees to contend with, an SMSF expert says.

The indexation of the general transfer balance cap (TBC) is likely to introduce new complications for trustees unaware of the implications of indexation on their fund, an SMSF expert has said.

Smarter SMSF chief executive Aaron Dunn said the indexation of the general TBC from $1.6 million to $1.7 million, which the ATO announced could occur as early as 1 July 2020, would result in a level of complexity trustees would not have been exposed to pre-indexation.

“The ‘simplicity’ of a personal cap that matched the general cap has meant that tracking transfer balance account positions has been relatively straightforward,” Dunn said in a blog post on the Smarter SMSF website.

“Without question the indexation of the cap is going to catch people out where there is an assumption of the general indexation of $100,000 applying or miscalculating the level of indexation due to the need to determine the smallest available cap space (prior to indexation) to work out what level of indexation applies.”

The ATO’s move to begin highlighting issues over the re-reporting of events within SMSFs was an indication future problems in this area were likely to arise, he added.

He also pointed out the effect indexation would have on making non-concessional contributions (NCC) into super, as well as the total superannuation balance (TSB) threshold.

“Where the general cap indexes from $1.6 million to $1.7 million, this will have an impact on making NCCs into super, including where an individual may be eligible for a co-contribution or where the contribution may otherwise qualify a spouse to claim a tax offset (up to 18 per cent on the first $3000),” he said.

“This increase in the TSB threshold will also include changes for any bring-forward NCC amounts. For example, ineligibility to make NCCs will increase to $1.7 million.”

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