Increase in super contribution cap and transfer balance cap

From 1 July 2021, federal government has increased super contribution cap and transfer balance cap.

Contribution cap increase

The concessional and non-concessional contribution caps are set to increase due to indexation for the first time since July 2017.

  • The concessional contribution cap is set to increase from $25,000 pa to $27,500.  
  • The non-concessional cap is set to increase from $100,000 to $110,000 (or $330,000 over 3 years).

Transfer balance cap increase

The general transfer balance cap is currently $1.6 million. From 1 July 2021, it will be indexed to $1.7 million. Please refer to the table below for how you will be affected when the general transfer balance cap is indexed.

Who will benefit from the increase?

  • For high-net-worth individuals who are considering reducing tax by making concessional super contributions, you can now contribute $2,500 more in the 2021/22 year.
  • For those considering large non-concessional contributions, you will need to think carefully about the timing of making the contributions. For example, if you contribute $300,000 now in 2020/21, this will lock the non-concessional cap of $100,000 for all three years (2020/21, 2021/22 and 2022/23) even though the cap will increase next year. All other things being equal, it may be preferrable to contribute $100,000 now and $330,000 in July 2021.
  • For someone with a large super balance (over $1.6 million) and would like to start pension phase right now, you might need to reconsider if it would be better to wait until July 1? Starting with the max amount now ($1.6 million) will lock in that lower cap forever. Delaying that until next financial year will mean the pension can start with $1.7 million. Of course, this needs to be weighed up with the benefits of starting as soon as possible.

Super contribution strategies

  • Personal concessional contribution and CGT

Do you know that you can make personal concessional super contributions to reduce your GCT bill? While the tax-deductible portion of your super contribution will be taxed at 15% in the fund, this strategy could enable you to make a larger super investment and retire with even more money to meet your living expenses.

  • Downsizer contribution for members over 65 years old

Are you over 65 years old and would like to sell your home? From 1 July 2018, if you are 65 years old or older and meet the eligibility requirements, you may be able to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home. If you and your spouse are both over 65 years old, you two might be able to make up to $600,000 downsizer contribution (conditions apply).

Your downsizer contribution is not a non-concessional contribution and will not count towards your contribution caps.

  • Re-contribution strategy

Re-contribution means you withdraw some of the savings from your super account and then re-contribute them back into the super system.

This strategy converts the taxable portion of your superannuation benefit into a tax -free component. Ultimately, this may result in a reduction of the potential tax payable when your super is passed onto your beneficiaries following your death.

To find out whether you could benefit from these strategies, please contact myself or the staff on 02 9923 2959 or mark@mcaccg.com.au

Please share this with anyone that you know this may be of interest to.

Table: Contribution and bring forward available to members under 65

Total superannuation balanceContribution and bring forward available
Less than $1.48 millionAccess to $330,000 cap (over three years)
Greater than or equal to $1.48 million and less than $1.59 millionAccess to $220,000 cap (over two years)
Greater than or equal to $1.59 million and less than $1.7 millionAccess to $110,000 cap (no bring-forward period, general non-concessional contributions cap applies)
Greater than or equal to $1.7 millionNil

Table: Summary of how you will be affected when the general transfer balance cap is indexed.

IfThen
You start your first retirement phase income stream on or after 1 July 2021.Your personal transfer balance cap will be $1.7 million.
You started a retirement phase income stream before 1 July 2021.Your personal transfer balance cap may increase slightly, unless between 1 July 2017 and 1 July 2021, the balance in your transfer balance account was $1.6 million or more. See: Transfer balance cap changes
You were a child death benefit beneficiary before indexation and you only receive a child death benefit income stream.Your child death benefit transfer balance cap increment won’t change. If you also receive another retirement phase income stream your personal transfer balance cap may increase slightly. See: Changes affecting child death benefit income streams
You will be receiving income from a capped defined benefit income stream and: you are 60 years or over the income stream is a death benefit and the member was over 60 at time of death.  The money your fund withholds from your income stream may change. The defined benefit income cap will increase to $106,250 for most individuals. You may need to review the amounts from these income streams that you include in your income tax return. The maximum amount of the 10% pension tax offset you may be able to claim will increase. See: Changes affecting capped defined benefit income streams
You make a non-concessional contribution to your super on or after 1 July 2017 and you have a superannuation balance of $1.7 million or more on 30 June 2021.You will exceed your non-concessional contributions cap. See: Non-concessional contributions cap changes
You want to receive a government co-contribution after contributing to your fund on or after 1 July 2021, and you have a superannuation balance of less than $1.7 million on 30 June 2021.You can if you meet all requirements. The limit to receive a co-contribution will increase from $1.6 to $1.7 million. See: Co-contribution changes
You want to claim the spouse tax offset for super contributions and your spouse has a superannuation balance of less than $1.7 million on 30 June 2021.You can if you meet all requirements. The spouse total superannuation balance limit will increase from $1.6 to $1.7 million. See: Spouse tax offset changes