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Shock Easy Budget – and Indexation of Transfer Balance Cap

I had a good night’s sleep on Tuesday night. A welcome relief after the perpetual roiling turbulence of last year. And the significant SMSF changes in the budgets of the previous two years.

There are no nasties and a couple of welcome changes:

  • Scrapping the work test for voluntary super contributions
  • Lower the age of downsizer contributions to aged 60
  • Unwinding of fixed and market linked pensions.

And the good news: they won’t come into effect until July 2022.

Plenty of time to get our late SMSFs in, implement Auditor Independence, and manage the ATO focus on diversification of SMSF investment strategies.

And deal with…..

Transfer Balance Cap has been indexed.

What does that mean?

Every now and then the government is generous. Recognises the impact of inflation and adjusts people’s allowances and tax thresholds.

Effectively from 30 June 2021, the transfer balance cap for members of an SMSF will rise from $1.6M to $1.7M.

However, that only applies if the member has not already commenced prior retirement income streams. If the transfer balance cap is already at $1.6M there is no increase.

For those members not at capacity then the increased cap will be proportionately adjusted depending on the current balance.

Nina – Pretty Ballerina – now retired.

Nina started a retirement phase income stream with a value of $1.2 million on 1 October 2018.

There are no other events in Nina’s transfer balance account. The highest ever balance in her transfer balance account is $1.2 million.

Nina’s unused cap percentage is 25% of $1.6 million.

Nina’s personal transfer balance cap will be indexed by 25% of $100,000.

Nina’s personal transfer balance cap after indexation on 1 July 2021 is $1.625 million.

So

If a client is looking to start a retirement phase income stream what do you do?  

If you were to wait till after July 2021 they may get access to a larger overall cap.

Please note that this a general observation. Your advice will be dependent upon your client’s individual circumstances.

If you are at all confused please feel free to call me and I will talk it through with you.

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