One of the benefits of the rise in inflation is that some important superannuation thresholds increased from 1 July 2023.
Total Superannuation Balance
The Total Superannuation Balance (TSB) is, put simply, the total amount that a person has in super, both in accumulation and pension phase, and is measured at 30 June each year. A person’s TSB has implications for eligibility to make certain types of contributions, including personal after-tax contributions also known as non-concessional contributions.
From 1 July 2023, due to indexation of the TSB threshold, the limit below which non-concessional contributions can be made increased to $1.9 million, up from $1.7 million. This potentially allows individuals who were unable to contribute to super prior to 30 June due to their total super balance exceeding $1.7 million, the opportunity to make non-concessional contributions if their super balance at 30 June 2023 was below $1.9 million.
Transfer Balance Cap
The other important threshold that increased from 1 July 2023 is the Transfer Balance Cap (TBC). This cap also increased from $1.7 million to $1.9 million. The transfer balance cap refers to the amount which a person can transfer to a retirement phase pension.
For example, John has recently retired, he has never had a retirement phase pension before, and wants to commence one in his SMSF. He currently has $2 million in an accumulation account. With the indexation of the TBC if he commenced a pension now, he could commence a pension with $1.9 million, leaving $100,000 in an accumulation account. Whereas, if he commenced one prior to 30 June 2023, he would have been limited to $1.7 million.
General TBC v Personal TBC
Whilst the General TBC increased from $1.7 million to $1.9 million on 1 July 2023, for anyone who has previously commenced a retirement phase pension, the cap will be different. This is known as the Personal TBC.
An individual’s Personal TBC depends upon how much of the cap has been used by that individual since 1 July 2017. The calculation of that indexation for anyone who has had such a pension since 2017, is complex and requires tailored advice.
If you have any questions regarding the above or would like further information as to how these changes impact you, please contact us on (03) 9584 2277.