TBC and TSB still creating confusion in the market
There’s still a lot of confusion around Transfer Balance Cap (TBC) and Total Superannuation Balance (TSB) but the two are very different entities, according to an SMSF commentator.
In a recent webinar for Knowledge Shop, Jason Hurst, technical superannuation advisor, explained how the upcoming 1 July 2023 indexation of the general TBC may open up opportunities for some clients – but the indexation rules are complex and can apply differently to clients depending on when they enter the retirement pension system.
“There is such confusion between the TBC and TSB because they were both introduced at the same time, and they both started at $1.6 million so it’s easy to jumble them up,” Mr Hurst explained.
“But they are really different concepts. The only real linking legislation is the fact that we have one section of the tax – section 294.35 that sets a general TBC that relates to pensions.
“And then we have another part of our contribution sections which says that someone can’t make NCCS if their total super balance is above that general TBC. So there really is only that link.”
Mr Hurst said other than that, the two are measured in different ways, and measured at different times.
“The easiest way to remember it is TSB will impact contributions while TBC will impact retirement pensions,” he said.
He said that TSB is not just the $1.6 million, $1.7 million or $1.9 million limits that are mentioned and that many other measures have now come into play.
“There’s been different TSB thresholds and even with the current $3 million, or tax on earnings on amounts over $3 million, the government seems committed to using TSB for that as well,” he said.
“There is also a bit of a myth that some people think there is no actual superannuation or pension balance limits, so your super can go up in value over these limits.
“We’re not looking at forcing anyone to remove money from super, it’s just that over certain amounts the tax exemptions start to water down.”
Mr Hurst explained that the TBC started in 2017 and anyone who has a retirement phase income stream will have a transfer balance account.
“Initially, existing income streams were given a transfer balance account on that first of July and that cap at that time was $1.6 million, so basically what that said was the most you can transfer into a retirement pension or have remaining in a retirement pension on 1 July 2017 was $1.6 million,” he said.
“Then in July 2021, we had our first indexation and the general cap jumped from $1.6 million to $1.7 million and it’s now jumping to $1.9 million on the 1 July 2023.
“From that first indexation different people will potentially have different personal TBCs but that doesn’t apply to transition to retirement income streams.
“Those income streams aren’t reported as an event under the TBC until that person either retires or reaches age 65.
“There are some exemptions for personal injury or structured settlements. Sometimes those clients can have more a pension based on certain some caveats.”
He said there are other areas to be mindful of as well, including account-based pensions and some legacy pensions.
“These include market-linked pensions, lifetime pensions and defined benefit pension that are within an SMSF, or they could even be [a] non-SMSF pension,” he said.
