Navigating the transfer balance cap

The transfer balance cap imposes a limit on the amount of capital that can be held in retirement phase in order to support a retirement phase superannuation income stream - also commonly referred to as a superannuation pension. The general transfer balance cap is $1.9 million for the 2023/24 income year.

The cap is subject to indexation increases in accordance with increases to the Consumer Price Index (CPI).

The major benefit of having capital in the retirement phase is that any earnings on that capital are taxed at 0%. Similarly, any capital gains tax (CGT) on the happening of a CGT event to the capital is disregarded. However, earnings on investments from accumulation phase assets are taxed at 15%.

The introduction of the transfer balance cap was seen as necessary to prevent wealthy members from using superannuation funds, at least excessively, as a tax haven by transferring significant amounts into retirement phase accounts to benefit from the nil tax rate on earnings and the CGT exemption on eligible capital.

What is a retirement phase account?

When a fund member satisfies certain conditions of eligibility to commence a retirement phase super income stream, they may elect for funds - up to the individual's transfer balance cap -to be transferred from accumulation phase to retirement phase.

The capital held in retirement phase is used to fund the pension payments made to the member. The capital is invested and any earnings may be used to fund future income stream payments.