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Understanding Super Changes: The Transfer Balance Cap

Following reforms to superannuation legislation back in November 2016, new super changes will come into play as of the 1^st July 2017.  One of the main changes is the implementation of the $1.6 million transfer balance cap. Now is the time to arm yourself with knowledge before the changes come into operation.

After recently attending the Super Reforms Masterclass, we have broken down the main changes to superannuation legislation to help our clients prepare for the July 1^st transition.

What is the super transfer balance cap?

Firstly let’s understand what the transfer balance cap is.  As per the Australian Government Treasury, the transfer cap is a cap on the total amount of accumulated superannuation an individual can transfer totaling $1.6 million. This is the amount from a concessional-taxed ‘accumulation account’ to a tax-free ‘retirement account’.

What do the super changes mean for you?

The Australian Government estimates that the changes to the transfer balance cap will affect less than one percent of Australians. The average Australian’s super balance in 2017-2018 sitting at just 15% of the total cap at $240 000. So for the average Australian super account holder, this change won’t impact your super balance or retirement planning.

For the 1% that is impacted, any savings over $1.6 million will be required to stay in an accumulation account where it will be taxed at 15%. Account holders can decide to leave their funds in this accumulation account, or release the funds for another purpose.

Subsequent earnings in the tax-free super account will not be capped or restricted.

Why the super changes?

The changes to the system have been made to ensure the long-term longevity of the Australian Superannuation System. The system is designed to help everyday Australians prepare for retirement as opposed to being part of a tax minimisation and estate planning strategy for the wealthier minority to use.

A more detailed Superannuation Fact Sheet on the $1.6 million transfer balance cap provides further, more detailed information.

Fixing up your super

If you would like to discuss your retirement and superannuation planning, make a booking online. You can also contact one of our four offices in Victoria and NSW to discuss your transition to retirement today.

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