Transfer balance cap
Notional earnings are calculated, on a daily basis, from the date the member first exceeds their transfer balance cap using the General Interest Charge (GIC) rate. The GIC rate is updated quarterly and is available on the ATO website: www.ato.gov.au/rates/general-interest-charge-(gic)-rates/. For the July to September quarter of the 2019-20 financial year, the annual GIC rate is 8.54%.
Notional earnings are used to determine how much excess transfer balance tax must be paid, and are themselves also a credit to a member's transfer balance account.
However, the amount of notional earnings credited to a member's transfer balance account, and the amount of notional earnings a member pays tax on, may differ.
Notional earnings for transfer balance account credits
The amount of notional earnings credited to a client's transfer balance account is the amount of notional earnings, calculated on a compounding basis, for the period from the date of breach to the earlier of:
- the date of rectification, or
- the date of the excess transfer balance determination from the ATO.
To rectify a breach, a client needs to commute the total of the original excess transfer amount plus the notional earnings credited to their transfer balance account. This total is the 'crystallised reduction amount'.
If a client is rectifying an excess transfer balance prior to receiving an excess transfer balance determination from the ATO, they will need to calculate the amount of notional earnings that need to be commuted.
If a client is rectifying an excess transfer balance after receiving an excess transfer balance determination from the ATO, the crystallised reduction amount is shown on an excess transfer balance determination in the box titled "You need to commute".
Notional earnings subject to excess transfer balance tax
Excess transfer balance tax of 15% applies to the amount of notional earnings accrued from the date of the breach to the date the excess amount is removed (i.e. partial or full commutation of a retirement phase income stream(s)).
The amount of notional earnings used to calculate excess transfer balance tax may be higher than the amount credited to the client's transfer balance account and included in the ATO notice, where the retirement phase income stream is commuted after the ATO excess transfer balance determination is issued. In other words, tax applies to notional earnings accrued between the date of breach and the date the breach is rectified.
Last modified: Thursday, July 25, 2019