How the TBC and your TSB can impact your super contributions

If you’re looking to make additional contributions to your super fund to boost your retirement savings and avoid additional taxes, it pays to know what your total super balance and the transfer balance cap is, and the difference between the two.

What is the transfer balance cap?

The transfer balance cap (TBC) is a limit on the amount of superannuation funds you can transfer and hold in retirement phase to support a pension or annuity over the course of your lifetime. It is capped at $1.6 million from 1 July 2017 and is periodically in $100,000 increments in line with the consumer price index (CPI).

Why is it important to know what your TBC is?

Knowing your TBC is important because if your transfer balance account exceeds the cap limit, you will be liable to pay an excess transfer balance tax.

What is the difference between TBC and TSB?

While the TBC looks at the movement of capital to and from retirement phase, the total superannuation balance (TSB) is a sum of the values of your retirement-phase interests and accumulation-phase interests as at 30 June each year. The TSB has been introduced as a measure to help determine your eligibility for various super measures.

Your TSB comprises of:

• the accumulation or pre-retirement phase accounts
• retirement phase accounts, such as an account based pension, and
• funds in the process of being transferred from one super account to another (‘in-transit rollovers’).
• in some circumstances, the outstanding balance belonging to a limited recourse borrowing arrangement(LRBA) in an SMSF that was entered into from 1 July 2018, if either
  • the LRBA is with an associate of the fund, or
  • you have satisfied a condition of release with a nil cashing restriction

The ATO will determine your TSB based on the information it receives from your super funds. You can find out your TSB by logging in to your MyGov account.

Why is your TSB important?

Knowing your TSB is important as this figure can affect your eligibility for a range of things – like your ability to make non-concessional or catch-up concessional contributions, receive Government co-contributions, claim offsets, and use the segregated asset method. The impact of your TSB on these are outlined below.

Making non-concessional contributions and accessing to the bring forward arrangement

From 1 July 2017, if on 30 June of the previous financial year your TSB is below $1.6 million you may be eligible to make non-concessional contributions and use the bring forward arrangement. The cap for these contributions based on your TSB can be found in the table below (accurate as at November 2019)

Making catch-up concessional contributions

From July 2018, if your total superannuation balance is less than $500,000 on the previous 30 June, you may be able to accrue unused amounts for use in a later financial year.

The 2019/2020 financial year is the first year that the unused cap amounts can be used. Amounts carried forward will expire after five years if they are not used.

Accessing Government co-contributions

From 1 July 2017 in addition to the existing eligibility requirements (i.e. earning less than the threshold), you will be eligible for the government co-contribution in a financial year of up to $500 if:

• your non-concessional contributions do not exceed the non-concessional contributions cap for the relevant financial year
• on 30 June of the previous financial year, your total superannuation balance is less than the transfer balance cap ($1.6 million)

Claiming spouse tax offsets

As a result of the introduction of TSB, from 1 July 2017, there have been additional eligibility requirements to meet to be entitled to the spouse tax offset. These are:

• your spouse receiving the contribution cannot contribute more than their non-concessional contributions capfor the relevant year
• your spouse must have a total superannuation balance of less than the transfer balance cap ($1.6 million) immediately before the start of the financial year in which the contribution was made

Using the segregated asset method

From 1 July 2017, SMSFs and regulated super funds with fewer than five members (small APRA funds), cannot use the segregated asset method to calculate exempt current pension income if at any time in the year, the fund has a retirement phase interest, and all of the following apply:

• a person has a total superannuation balance exceeding $1.6 million just before the start of that year
• the same person has a super interest in the fund at any time during the year
• the same person is the retirement phase recipient of a superannuation income stream just before the start of the year (from the fund or another provider).

As you can see, while there are key differences between your TSB and the set TBC, both have implications on how and when you can make additional contributions to your super fund.

Understanding super terms and rules can be difficult, but seeking advice from an expert can simplify the complexities and put things into context within your own personal situation. To learn more about how your TSB and the TBC might impact you, contact The Hopkins Group today.