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Government urged to simplify transfer balance cap in upcoming budget 

john maroney smsf
Tony Zhang
03 February 2022 — 2 minute read

The SMSF Association has called for the government to simplify the transfer balance cap, with the indexation of the TBC adding significant complexity to the superannuation system. 

In its submission to the 2022-23 federal budget, due to be handed down on 29 March, the SMSF Association has placed simplification of TBCs at the top of its recommendations.

“As our submission points out, the system has shifted from having a single cap to individual caps ranging from $1.6 to $1.7 million. This is causing confusion and increased costs across the sector,” SMSF Association chief executive John Maroney said.

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“Inevitably, mistakes will be made, leading to inadvertent breaches of the TBC. This situation is being compounded by the lack of access for financial advisers and SMSF administrators to the ATO reports that are needed to obtain an individual’s TBC.

“In our opinion, the use of a single cap will reduce costs, uncertainty and benefit all stakeholders – a position, we believe, is strongly supported across the SMSF sector.”

In the submission, the association noted that the transfer balance cap had become an increasingly complex situation that over time will result in most individuals with a retirement phase income stream having a personal TBC, which is different to the general TBC maximum. 

“This distortion will continue to grow in complexity as future indexation of the TBC is applied. Individuals who haven’t used their cap will have a maximum TBC of $1.7 million, individuals who have used a portion of their cap (based on their highest percentage usage) will fall somewhere between $1.6 million and $1.7 million and individuals who have used all their cap will remain at $1.6 million,” the SMSF Association said.

“Due to the complex nature of proportional indexation, it is inevitable that mistakes will be made leading to inadvertent breaches of the TBC.

The SMSFA proposed that one simple way of addressing the complexities associated with proportional indexation would be to align all members TBC with the general TBC. 

“This would provide certainty, reduce costs, and simplify the administration involved for the Australian Taxation Office, financial advisers, SMSF administrations and tax agents as well as the members themselves,” the SMSF Association explained.

“Indexing the TBC in this manner ensures that superannuation members in retirement are not disadvantaged by the impacts of inflation. Allowing members to retain more in the retirement phase, including on the death of a spouse. 

“The costs of allowing broad application of TBC indexation and the incremental loss of tax revenue are not expected to be significant, particularly when we consider the costs of indexation including the costs of administration and complex system redesign. 

“These system costs will be incurred each time indexation falls due. The need for access to timely and accurate data is fundamental to ensuring that members comply with their TBC. This highlights the need for the government to ensure that access to this data is not limited and can be accessed by all authorised advisers in an efficient way.” 

Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.

Government urged to simplify transfer balance cap in upcoming budget 
john maroney smsf
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