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ATO prepares SMSFs for potential indexation of transfer balance cap

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By mbrownlee
December 10 2020
1 minute read
9 View Comments
ATO prepares SMSFs for potential indexation of transfer balance cap
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The Tax Office has outlined some of the potential impacts for retirement phase income streams if indexation of the general transfer balance cap occurs next year, warning that late reporting may have “significant consequences” for individuals.

In a public update, the ATO stated if the All Groups consumer price index (CPI) figure for the December 2020 quarter is 116.9 or higher, then indexation of the general transfer balance cap will occur on 1 July 2021.

It noted that the CPI figure for the September 2020 quarter released on 28 October was 116.2.

 
 

Once indexation of the general transfer balance occurs, there will be no single transfer balance cap which applies to all individuals, the ATO explained.

An individual who starts their first retirement phase income stream on or after indexation, it said, will have a transfer balance cap of $1.7 million.

“[However], an individual who already had a transfer balance account and who at any time met or exceeded the $1.6 million transfer balance cap will not be entitled to indexation and their personal transfer balance cap will remain at $1.6 million,” the ATO cautioned.

“For every other individual, their entitlement to indexation will be based on identifying the highest-ever balance in their transfer balance account and using this information to calculate the proportional increase in their transfer balance cap and applying that new personal transfer balance cap to their affairs going forward. These individuals will have a personal transfer balance cap somewhere between $1.6 million and $1.7 million.”

The ATO stated that it will do this calculation when indexation occurs based on the information received and processed by the ATO at this time. 

“We will use and display what we consider the individual’s personal transfer balance cap to be. After indexation, ATO online services (and online services for agents) will be the only place an individual who had a transfer balance account prior to indexation will be able to see their personal transfer balance cap,” the ATO said.

“Late reporting and retrospective re-reporting by any provider after indexation has occurred may have significant consequences for the individual as we will go back and reconsider if the individual was entitled to proportional indexation and apply this new information to their affairs.”

Indexation of the general transfer balance cap will have consequences on other caps and limits that will flow through to other parts of the tax and super systems, the Tax Office noted.

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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au

Comments (9)

  • avatar
    What will happen to the indexation of super balances where people have increased their balance by "downsizing" their homes?
    0
  • avatar
    I think the government purpose and motive is quite simple. Make running an SMSF as difficult as possible so people go back to the big APRA funds. Every change of rules suggested, and often implemented, by government has made running an SMSF increasingly more difficult. I'm sure the government aim is to make it impossible, or at the least, too expensive to run one. I'm yet to see any change where I think - Wow! That will be a great benefit to me.
    0
  • avatar
    Every time there is a change to superannuation policy, the process seems to become increasingly more complex. Whilst there is justification for indexation of the transfer balance cap, surely it can be achieved simply and fairly.
    0
  • avatar
    The increased cost and monitoring required by everyone - trustees, accountants, financial planners, ATO will just be horrendous, let alone the software compliance costs.
    Talk about adding a complex and difficult amount of red tape.
    Those that have used up their Transfer Balance Cap I think will be the lucky ones - as they wont have to worry about it changing.
    It could have been a whole lot easier.
    0
  • avatar
    Could they not have left it how it was and said earnings over a certain level are taxed more? This may actually cost the government money also as wealthy people are leaving money in super longer which is a tax haven after all.
    0
  • avatar
    Leave things alone Monday, 14 December 2020
    The government had a simple system but thought they could improve it, as a result they have made it considerably worse.
    0
  • avatar
    TBC indexation is one of the worst pieces of legislative drafting you can imagine. It is unnecessarily complicated and smacks of seeking perfect when near enough would have been sufficient. Managing this will be a nightmare.
    Indexation is appropriate but the super system has too many reference points and then adding in this convoluted calculation is just too much.
    Why not a straight indexation for all that have not used $1.6m?
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    • avatar
      The whole system could have been so much simpler. It looks to me like the people drafting this had a competition to see who could come up with the most complicated method and ran with that!
      0
    • avatar
      The ATO have already advised industry they will manage the TBC record keeping and the data will be available via a form of portal which is already well-advanced in development. Yes, unnecessarily complex, but manageable.
      0
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