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ATO prepares SMSFs for potential indexation of transfer balance cap

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.

SMSF Miranda Brownlee 14 December 2020
— 1 minute read

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.

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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.

ATO prepares SMSFs for potential indexation of transfer balance cap
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