The key data that will determine whether indexation will be applied to the transfer balance cap (TBC) from 1 July 2020 will be released later this month.
The consumer price index (CPI) for the December quarter 2019 is the deciding factor regarding the implementation of TBC indexation and will be officially published by the Australian Bureau of Statistics on 29 January.
“[If] the CPI figure for December gets to 116.9 [index points] or higher, then we will see the general transfer cap change from 1 July 2020,” Smarter SMSF chief executive Aaron Dunn said during his most recent technical webinar.
Dunn added TBC management would become significantly more complicated if indexation is introduced at the beginning of the new financial year.
“This is when we’re going to have to be very cognisant of the difference between the general transfer balance cap and the personal transfer balance cap. At the moment both sit at $1.6 million,” he said.
“What’s important to note here is if the transfer balance cap increases, it’s going to impact a range of measures.
“First and foremost it will affect non-concessional contributions, including the timing around the bring-forward rules.
“It also will impact co-contributions so it will push up the eligibility for co-contributions based upon $1.7 million rather than $1.6 million.
“The eligibility for spouses to claim the tax offset will be affected as well.”
He noted indexation would have no impact on disregarded small fund assets.
“So the $1.6 million threshold that applies to whether a fund can use segregation or not [for exempt current pension income calculations] will not increase,” he said.
He noted there will be no issues if a person commences an income stream after 1 July 2020 as the higher TBC of $1.7 million would apply. However, if an individual has an existing pension at this date, it will have to be determined how much of their personal TBC has already been used to realise the impact of indexation.
“If they’ve already used $1.6 million of their $1.6 million cap, then the indexation will not give them any [additional TBC] amount because they would have already used 100 per cent of their cap and their cap space will be zero,” he said.
In August last year, the ATO announced it was already preparing for the effects of indexation should the measure be triggered in 2020.