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Overview of the transfer balance cap

The transfer balance cap was introduced as part of the reforms to superannuation in the 2016 Federal Budget and will commence on 1 July 2017.

The cap applies to the total amount of super that has been transferred into the retirement phase. The cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with CPI. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.

Each individual with super interests in the retirement phase has a personal transfer balance cap that cannot be shared with anyone else. Individuals will have a transfer balance account which tracks the net amounts transferred to the retirement phase.

Individuals who currently receive a pension or annuity income stream that is close to or in excess of the cap, or start a retirement phase income stream after 1 July 2017 will be affected by the transfer balance cap. Those affected should seek advice as to how to reduce the value of their income stream before 1 July 2017 to ensure there is not an excess.

For those who will commence a retirement phase income stream after 1 July 2017, you must ensure:
– your account based pensions and annuities do not exceed the $1.6 million transfer balance cap
– you include income from certain lifetime pensions (usually paid from a defined benefit fund) in your income tax return if you are over 60, and may need to pay more tax
– if you have a mix of pension types, with a total value exceeding $1.6 million, you reduce any account based pensions to reduce the total value of all your pensions below the transfer balance cap.

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News

Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).