What is the Transfer Balance Cap (TBC)

In Australia, the Transfer Balance Cap (TBC) is a limit on how much superannuation you can move into retirement phase accounts where earnings are generally tax-free.

The Transfer Balance Cap (TBC) is an important limit in the Australian superannuation system. It controls how much money you can move into a retirement phase account where earnings are generally tax-free. The cap was introduced on 1 July 2017 to make the system fairer by setting a maximum for tax-free super savings. For the 2025-26 financial year, the general cap will increase from $1.9 million to $2 million.

What is the Transfer Balance Cap?

Simply put, the Transfer Balance Cap limits the amount of money you can transfer from the accumulation phase of your super (where earnings are taxed) into the retirement phase (where earnings are mostly tax-free).

This cap applies to all retirement phase income streams such as account-based pensions. The cap is personal to you. If you started your pension before the most recent increase, your cap is increased proportionally based on your original cap and the timing of your pension commencement, not just reset to the full $2 million. This proportional indexing ensures fairness for all members.

The cap tracks credits (like pension commencements) and debits (such as commutations or transfers back to accumulation), but importantly, it does not change due to investment earnings after you start your retirement phase pension. You can check your personal Transfer Balance Cap easily using ATO online services.

What is Transitional CGT Relief?

Transitional Capital Gains Tax (CGT) Relief was designed to help SMSF members transition smoothly to the new Transfer Balance Cap rules implemented on 1 July 2017. If your SMSF held certain capital assets continuously from 9 November 2016 through 30 June 2017 (the "pre-commencement period") and used those assets to start a pension, you may be eligible for this relief.

Eligible assets get a special cost base reset to their market value at 30 June 2017. This means gains accrued before the cap started are not subject to tax when sold later, reducing unexpected tax bills.

To qualify for this relief, the assets must have been owned by your SMSF continuously from 9 November 2016 through 30 June 2017, and the relief applies to assets held to support retirement phase income streams. Trustees must actively apply for this relief when lodging their SMSF annual return because it doesn’t happen automatically. Because the rules and forms are technical, it’s strongly recommended to get professional advice when applying.

How Does the Transfer Balance Cap Relate to TBAR?

The Transfer Balance Account Reporting (TBAR) regime lets the Australian Taxation Office (ATO) monitor your transfer balance account, tracking how much you’ve moved into the retirement phase. SMSFs must report every pension start, commutation, lump sum withdrawal, or change affecting your transfer balance account.

Since 1 July 2023, TBAR must be lodged every quarter within 28 days after the quarter ends. Some events require even faster reporting: voluntary commutations following an ATO excess determination must be reported within 10 business days after the commutation month, and commutation authorities issued by the Commissioner specify individual lodgement deadlines. These stricter timelines help the ATO monitor and enforce compliance swiftly.

What Happens if Your Pension Balance Exceeds the Cap?

If your retirement phase super balance goes over your Transfer Balance Cap, the ATO expects you to correct this quickly. You must remove the excess amount by commuting it (withdrawing) back to the accumulation phase or as a lump sum withdrawal.

Failing to act results in two types of tax charges. First, the Excess Transfer Balance Tax applies, a 15% tax on the excess amount for a first breach, increasing to 30% for subsequent breaches. Second, you pay an Excess Earnings Charge, a tax on the notional earnings attributed to your excess balance, calculated daily until the excess is corrected. These charges can become costly, so swift action is essential.

Trustees can consider several tax-effective strategies to manage excess balances, including partial commutations, restructuring income streams, and working with spouses to divide caps where allowed. Acting quickly preserves helpful tax exemptions and protects your retirement savings from costly penalties. Trustees should seek expert advice to safeguard tax benefits and compliance.

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DISCLAIMER: This article is provided for general information only. While care has been taken, no guarantee is given as to the accuracy, completeness, or timeliness of the content. It does not constitute financial, accounting, legal, or SMSF advice and does not consider your personal circumstances. You should seek independent, licensed professional advice before making decisions about SMSFs, compliance, or investments. #TransferBalanceCap #SMSFPensions #CGTRelief #SuperannuationCompliance