Contributions, Superannuation

Make general TBC a threshold standard

Transfer balance cap proportionate indexation Superannuation The Tax Institute Institute of Financial Professionals Australia

The general transfer balance cap should be applied to all super fund members and used as the basis for setting and raising other thresholds.

Superannuation caps and thresholds should be simplified around a single figure, such as the transfer balance cap (TBC), and the proportionate indexation of that number should be dropped in favour of universal indexation for all fund members, two industry bodies have recommended.

Pre-budget submissions from The Tax Institute and the Institute of Financial Professionals Australia (IFPA) have highlighted the lack of consistency in the indexation of an individual’s TBC, which has made calculating it more complex.

“Current indexation methods may create separate TBC for an individual that is different to the rest of the population, making it difficult for taxpayers to understand and meet their obligations, and for the ATO to administer the regime,” The Tax Institute stated.

“The Tax Institute is of the view that the government should abolish proportionate indexation of the transfer balance cap.

“Instead, indexation should apply universally to all superannuation fund members so that there is greater certainty about members’ TBC amount and to free up the ATO’s compliance resources from this area.”

This view was supported by IFPA, which added the indexation of other thresholds should be aligned with changes to the general TBC that applies to all superannuation fund members.

“There is inconsistency in the superannuation system in how various thresholds are indexed, including proportional indexation for personal TBC, indexation of general TBC in increments of $100,000, depending on the consumer price index, and general concessional contributions cap of $27,500, indexed in increments of $2500 in line with average weekly ordinary time earnings (AWOTE),” it said.

“We believe that many of these thresholds should be indexed under the same formula tied to AWOTE,” it said, adding other thresholds should be consolidated and also tied to the general TBC.

“The superannuation system currently has a significant number of different thresholds for various measures, including total superannuation balance (TSB), which varies depending on the measure, disregarded small fund assets [which applies where the] TSB is more than $1.6 million, unused concessional carry-forward cap [which applies where the] TSB is less than $500,000, bring-forward rules for non-concessional contributions of up to $330,000 where the TSB is less than $1.68 million and an extension of work test exemption [where the TSB] is less than $300,000.

“Some of these thresholds, such as the disregarded small fund assets, the unused concessional carry-forward cap and the work test exemption have not been reviewed since inception.

“As such, we believe that many of these thresholds should be consolidated to a single threshold of $1.9 million, that is, the general TBC, as indexed.”

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