TBC rise may be frozen

Budget pressures may head off any increase to the transfer balance cap with the government imposed a freeze to recoup some tax savings.

The federal government may override any automatic indexation of the transfer balance cap (TBC) driven by rising inflation in favour of budget repair measures aimed at keeping more taxable money within superannuation, according to a technical expert.

SuperConcepts SMSF technical and strategic solutions executive manager Phil La Greca said the last indexation of the TBC in 2021 effectively created 100,000 different TBCs, ranging from $1.6 million to $1.7 million, depending on how much of the cap a super fund member had used.

Speaking during a webinar today, La Greca noted that if the TBC moves to $1.8 million because of inflation, that number would increase to 200,000, leading to a greater push for a simplified TBC regime, but any such moves might be forestalled by the government in its October budget.

“Indexation could go one of two ways where if you have not used your full cap, you get full indexation and if you have used any of your cap, you get no future indexation,” he said.

“Having said that, there is a bit of a deficit in the budget and it may well be the government says you can get some indexation, but it will be frozen at the level that applied at the time you used it.

“The other thing they could do is freeze indexation and defer the $1.7 million going up to $1.8 million because of the impact to the budget.

“The impact for the budget is because the higher the level of the TBC, the more money people can have in pension and the less tax income that the government gets from pension funds because they have $1.8 million, rather than the current $1.7 million and that is $100,000 worth of assets on which any earnings are exempt that previously were not exempt.”

He added indexation freezing may also apply to concessional contributions for the same reason, but it was unlikely they would rise in the next year as they were not linked to inflation but to wages growth, which has remained low for a long period.

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