The Australian Bureau of Statistics (ABS) is set to release the All Groups CPI figure for the December quarter next week, which will determine indexation of the general transfer balance cap for the 2023–24 income year.
Based on the current level of inflation, BT technical consultant Tim Howard said the general transfer balance cap may be raised as high as $1.9 million from 1 July 2023 depending on the figure released next week.
“Indexation of the cap is determined by reference to movements in the consumer price index (CPI). Increases to the cap occur in increments of $100,000. Because of the rapid increase in the level of CPI during 2022, it seems almost certain that there will be a ‘double indexation’ of the general cap (i.e., 2 x $100,000),” said Mr Howard.
For advisers with clients planning to start a retirement income stream before 30 June 2023, Mr Howard said it may be worth considering if this will lead to the best outcome for them.
“Would they be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit?” he questioned.
Given that the total superannuation balance (TSB) threshold is equal to the general transfer balance cap, Mr Howard said it is also important for advisers to consider the impact of the indexation increase on their clients contribution strategies.
“The TSB is used, amongst other things, to determine the level of non-concessional contributions that can be made by a client into super in a particular income year,” Mr Howard explained.
“The TSB threshold is an amount equal to the general transfer balance cap, so it is currently $1.7m but will increase to either $1.8m or, more likely, $1.9m from 1 July 2023.”
Speaking in a recent webinar, SuperGuardian education manager Tim Miller explained that if the All Groups CPI figure for the December quarter reaches 130.7 or higher, then the calculation will result in the general transfer balance cap reaching $1.9 million.
“The September CPI figure was 128.4 so it’s not inconceivable that we’ll get to $1.9 million,” said Mr Miller.
“It’s possible that it may just fall short which will mean will have an increase to $1.8 million for next financial year and then a potential increase to $1.9 million the following year.”
Mr Miller noted that there is still a lot of speculation that indexation of the general transfer balance cap could be frozen by the government.
“It’s just speculation at this point in time so from a planning point of view, expect the transfer balance cap to be indexed,” he said.
