If an individual has a retirement phase account balance in excess of the $1.6 million cap they will need to:
– remove any amount over $1.6 million, plus excess transfer balance earnings, from retirement phase; and
– pay excess transfer balance tax.
If an individual exceeds the cap because they were receiving certain lifetime, life-expectancy or market linked
pensions or annuities, they may not be able to commute these pensions or annuities to bring themselves under
the cap. If this happens, the tax treatment of these income streams will change.
Removing the excess capital and earnings
If an individual exceeds their transfer balance cap they will receive earnings made on the excess capital while
they are in excess of the cap. Consequently, these earnings will need to be removed from retirement phase.
The excess transfer balance earnings an individual will need to remove are notional earnings calculated at a rate
based on the general interest charge, not the actual amount of earnings that may have accrued.
For the purposes of calculating how much an individual will need to remove from retirement phase, excess
transfer balance earnings accrue and compound daily until the ATO send them a determination or, if they remove
the excess capital and earnings before the ATO send them a determination, the date the individual removed the
Where an individual exceeds their cap and does not remove the excess capital and excess transfer balance
earnings, the ATO will issue them with an excess transfer balance determination. This will specify how much the
individual will need to remove from retirement phase.
Excess transfer balance tax
Once an individual has removed all the excess capital and excess transfer balance earnings from retirement
phase, the ATO will calculate the amount of excess transfer balance tax they will need to pay and an assessment
will be sent.
To calculate the tax an individual will need to pay, the ATO will:
– calculate an individual’s excess transfer balance earnings from the day they first exceed the cap to the date of
rectification (when their balance is no longer in excess)
– multiply their earnings by the excess transfer balance tax rate.
The rate of excess transfer balance tax is 15% for any excess periods that start in the 2017-18 financial year.
From 1 July 2018 the rate is 15% for a first year breach and then 30% for subsequent breaches.
Should you have any questions in regards to the excess transfer balance, please feel free to contact us on 03 9557 3138 or firstname.lastname@example.org