Transfer balance cap to rise on July 1BY JAMIE WILLIAMSON | THURSDAY, 30 JAN 2025 12:47PMWhile the official word will come from the Australian Taxation Office (ATO) in March, the December 2024 inflation figures released by the Australian Bureau of Statistics (ABS) yesterday confirmed the indexation of the cap. Currently $1.9 million, from July 1 the TBC will jump to $2 million. It will only apply to those who have not yet exhausted the cap. However, the higher TBC may impact how the three-year bring forward rule on non-concessional contributions (NCC) is applied. "The likely result from July 1 is that the total super balance thresholds for bring forward NCC eligibility will increase but the NCC cap will remain unchanged compared to 2024/25. This means that new opportunities may arise around NCC eligibility next financial year," MLC senior technical services manager Chris Chow said. Chow explained the increased TBC creates several advice opportunities for clients who are yet to start a retirement phase pension, have not yet exhausted their cap and wish to transfer more into the retirement phase, or receive a transition to retirement pension and will meet a condition of release by June 30. Chow said for those looking to start a retirement phase pension for the first time, advisers should think carefully about whether to start the pension now or wait until July 1 to get the full benefit of the increase. Factors to consider include whether the client needs the additional cash flow, and the benefit of accessing the tax-free environment now versus having the additional $100,000 in the retirement phase. "On the second point, generally the later in the financial year, the greater the benefit of holding off until after July 1 becomes. However, this is still dependent on cash flow issues, the impact on the tax-free component and taxable component ratio and market growth," he noted. Where clients have already stared a retirement phase pension but never full used their personal TBC, advisers should consider the impact of adding more funds into retirement phase before July 1 and the effect on the client's entitlement to proportional indexation of the increase, Chow noted. Finally, for those clients with transition to retirement pensions that don't count towards the TBC until a condition of release is met, Chow said it's important to review their circumstances before their 65th birthday or notify the trustee if another condition of release - such as permanent retirement or terminal illness - is met. "If the condition of release is met before July 1, the adviser will need to consider whether to move funds back to accumulation phase beforehand in order to get the benefit," he said. Meanwhile, contribution caps are determined by a different measure, the average weekly ordinary time earnings (AWOTE), which is set to be released next month. Chow said the most recent AWOTE figures suggest it is unlikely contribution caps will increase for FY25-26. In July 2024, the concessional contribution cap rose from $27,500 to $30,000, while the non-concessional cap rose from $110,000 to $120,000 - the first time the caps rose in three years. Related News |
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