Now that the proposed $1.6 million pension transfer balance cap is law, I thought it best to explain.

Under this new law referred to as the “Transfer Balance Cap”, from 1 July 2017 every superannuation fund member is limited to $1.6 million in their pension account where the investment income is tax free. Members with amounts in excess of $1.6 million in their pension account will be taxed at 15%. Earnings accumulated in the pension account can remain if the account grows in excess of $1.6 million. However, if the pension account reduces, due to a poor investment performance, members will not be able to increase their pension account back up to $1.6 million.

The transfer balance cap is indexed in increments of $100,000 in line with the CPI. If an individual has not fully utilised this limit and chooses to transfer their funds, after an indexation increase has occurred, then they can use a percentage of the index increase based on what they have already used.

It sounds tricky and for the first year it will take some careful planning so talk to myself or Tanya Hofbauer, our Partner specialising in SMSF’s.

Pat Mannix, Partner, Paris Financial

Follow me on Twitter @mannix_pat

 

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