SMSF STRATEGY GUIDE
THE TRANSFER BALANCE CAP
Once upon a time, the amount that a SMSF member could have in the tax exempt pension phase of an SMSF was unlimited. However, with the advent of the so called 'Fair and sustainable' super reforms, this all changed from 1 July 2017.
WHAT IS IT ?
The transfer balance cap is essentially a limit on how much superannuation a member can transfer from the accumulation phase over into the tax free pension phase.
HOW MUCH IS IT
The transfer balance cap is currently $1.6 million (2019/20). This will be indexed to CPI, but will only go up in $100,000 steps. How much of that indexation a member can use is calculated proportionally based on how much cap space they have left.
They can keep rolling benefits from the accumulation phase to the pension phase so long as they keep below their transfer balance cap.
WHAT IS YOU HAVE MORE FUNDS THAN THE TRANSFER BALANCE CAP
If a member's SMSF accumulation account is higher than $1.6 million, then they have a couple of options when it comes time to moving into the pension phase.
1. Withdraw the excess
The first option is to transfer $1.6 million over to the pension phase of the SMSF, and to withdraw the balance from the super fund and invest it in the member's own name, or via another entity (such as a discretionary trust).
2. Retain excess in an accumulation account
The other option is to transfer 1.6 million over to the pension phase of the SMSF, but to then retain the balance within an accumulation account in the fund. This portion of the SMSF will be taxed at 15% on it's attributable income, just like before. If the member's marginal tax rate on this excess amount would be higher than 15% if they withdrew it and invested it (as per No.1 above) then this may be the preferred option.