Understanding the Transfer Balance Cap for SMSFs
The Transfer Balance Cap (TBC) is a limit on the total amount of superannuation savings that can be transferred into the retirement phase of a Self-Managed Super Fund (SMSF) to start a pension.
Introduced on 1 July 2017, it ensures that members do not receive unlimited tax-free earnings in the pension phase.
At HelloLedger, we assist SMSF trustees in managing their transfer balance cap, ensuring compliance with ATO reporting rules and minimising penalties
What Is the Transfer
Balance Cap?
The Transfer Balance Cap (TBC) limits how much super can be transferred into a retirement-phase pension account, where investment earnings are tax-free.
Current Transfer Balance Cap
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As of 1 July 2023, the general TBC is $1.9 million.
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Members with balances exceeding this amount must keep the excess in the accumulation phase, where earnings are taxed at 15%.
Note: The cap is indexed periodically in increments of $100,000, based on inflation.
How Does the Transfer Balance Cap Work?
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When a member starts a pension, the amount transferred to the pension phase is counted towards their Transfer Balance Account (TBA).
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Withdrawals do not reduce the amount counted against the cap.
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Members can top up their cap if they have unused cap space due to indexation.
Example:
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In 2022, Lisa transferred $1.6 million to start a pension.
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In 2023, the cap increased to $1.9 million.
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Lisa cannot top up by $300,000; her cap is proportional to the unused space based on her prior transfer.
Excess Transfer Balance and Penalties
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If a member exceeds the TBC, the excess amount:
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Must be transferred back to the accumulation phase.
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Earnings on the excess are taxed at 15% initially and 30% for subsequent breaches.
At HelloLedger, we assist trustees in monitoring balances, adjusting accounts, and avoiding penalties
Key Compliance Requirements
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Transfer Balance Account Reporting (TBAR)
SMSFs must report transfer balance events to the ATO, including:
- Commencing a pension.
- Stopping or commuting a pension.
- Releasing excess transfer balances.
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Reporting Deadlines:
Quarterly: You must report all transfer balance account events 28 days after the end of the quarter in which the event occurred.
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Indexation of the Transfer Balance Cap
The general TBC is indexed periodically, but members with an existing Transfer Balance Account (TBA) receive proportional increases based on their unused cap.
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Managing Multiple Pensions
- Members with multiple pensions must track each pension’s balance against their personal cap.
- Moving between pensions does not reset the cap—compliance must be maintained.
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Benefits of Managing the Transfer Balance Cap
- Tax-Free Earnings: Funds in the pension phase enjoy tax-free investment earnings, maximizing retirement savings.
- Flexibility: Members can structure their pensions and accumulation accounts to suit their financial goals.
- Compliance Assurance: Proper management prevents penalties and maintains fund integrity.
Transfer Balance Cap FAQs
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What is the Transfer Balance Cap?
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The TBC is the maximum amount ($1.9 million as of 1 July 2023) that can be transferred into a tax-free retirement phase pension.
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Is the Transfer Balance Cap indexed?
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Yes, the general cap is indexed in $100,000 increments based on inflation. Members who haven’t fully used their cap benefit from proportional indexation.
How do I track my Transfer Balance Account?
Your Transfer Balance Account (TBA) is reported by your SMSF to the ATO through TBAR lodgements. You can view your balance via myGov or you can ask your Registered Tax Agent to review your balance report.
Can I use my cap multiple times?
Yes, but any used cap space is counted permanently—even if you withdraw funds later, the used portion cannot be reclaimed.
Can HelloLedger assist with Transfer Balance Cap compliance?
Yes! HelloLedger provides:
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TBAR lodgement and ATO reporting.
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Excess balance management and penalty mitigation.
Ongoing monitoring and advice to keep your fund compliant.
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What happens if I exceed the cap?
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Excess funds must be transferred back to the accumulation phase, and earnings on the excess may be taxed at 15–30%.
Does the Transfer Balance Cap apply to each pension?
No, the cap applies to your total retirement-phase balance, including all pension accounts.
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What events must be reported to the ATO?
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Key events that must be reported include:
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- Starting or stopping a pension.
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- Commutations (reductions) or partial rollbacks to the accumulation phase.
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- Excess transfer balance adjustments.
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Are there penalties for breaching the cap?
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Yes, breaches incur tax penalties on earnings from excess balances, starting at 15% and increasing to 30% for repeated breaches.