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Transfer balance cap

Transfer balance account credits

Section: 19.7

Generally, a credit arises in a client's transfer balance account when the client commences a retirement phase income stream.

The following amounts are credits:

  • The value of all existing retirement phase income streams at 30 June 2017
  • The value on the starting day of new retirement phase income streams commenced on or after 1 July 2017
  • Any notional earnings calculated by the ATO as a result of an excess transfer balance (see section 11.8 for more information).

Value of retirement phase income streams

The value of a retirement phase income stream for the purposes of the transfer balance account depends on the type of income stream. The valuation of retirement phase income streams falls into one of four categories detailed below.

  • Account based income streams
  • Capped defined benefit income streams
  • Deferred income streams
  • Other retirement phase income streams (that are not any of the above)

Account based income streams - transfer balance account value

The value of an account based income stream (excluding term allocated pensions) for transfer balance account purposes is:

  • For account based income streams commenced prior to 1 July 2017: the account balance at 30 June 2017.
  • For account based income streams commenced on or after 1 July 2017: the purchase price.

Capped defined benefit income streams - transfer balance cap value

Special valuation rules, for transfer balance account purposes, apply to certain non-commutable income streams known as capped defined benefit income streams. The special rules mean that capped defined benefit income streams do not have to be commuted and will not be subject to excess transfer balance tax.

Broadly, capped defined benefit income streams are income streams that meet specific product features set out in the SIS regulations, and must have commenced prior to 1 July 2017 (except for lifetime pensions). These are summarised below, along with the special value calculations that are used for transfer balance cap purposes.

Income stream Must meet SIS regulation Special value for transfer balance cap
Lifetime pensions commenced at any time 1.06(2) Annual entitlement x 16
Lifetime annuities commenced prior to 1 July 2017 1.05(2)
Life expectancy pensions and annuities commenced prior to 1 July 2017 1.06(7)

1.05(9)

Annual entitlement x remaining term
Market-linked pensions and annuities commenced prior to 1 July 2017 1.06(8)

1.05(10)

Any income streams prescribed by the regulations to be capped defined benefit income streams As set out in regulations

Deferred income streams - transfer balance account value

A deferred superannuation income stream will be introduced as part of the innovative retirement income products super reform. An example of a deferred superannuation income stream is a deferred annuity, that may be purchased at age 60 but not commence paying an income stream until age 80.

The value of a deferred superannuation income stream will count as a credit for transfer balance account purposes when the deferred superannuation income stream becomes a 'retirement phase' income stream. This occurs when the client has met the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release.

Other retirement phase income streams - transfer balance cap value

The value of a retirement phase income stream that is not:

  • account based; or
  • deferred superannuation income stream; or
  • capped defined benefit income stream

depends on whether it is possible to identify a lump sum equivalent for the income stream at valuation. The following tables set out the value of these income streams for transfer balance cap purposes:

Income streams commenced prior to 1 July 2017

Examples Value for transfer balance cap
  • Defined benefit income streams that do not comply with SIS regulation 1.06(2)
  • Non-complying annuities (lifetime and fixed term)
  • Flexi-pensions
  • Annuities where the purchase price is not wholly converted into annuity income
Value determined by the regulations.
All other income streams Total amount of all the superannuation lump sums that could be payable from the interest at 30 June 2017.

Income streams commenced on or after 1 July 2017 

Examples Value for transfer balance cap
Purchased income streams (eg a commutable lifetime annuity, market linked income stream or term/life expectancy income stream) Purchase price.
Non-purchased income streams (eg a commutable defined benefit pension) Value determined by the regulations

Last modified: Thursday, August 24, 2017