Starting an account based pension in the new financial year
Ensure any tax deductions for personal contributions are claimed (i.e., deduction notice is lodged with the fund and acknowledgement received) prior to commencing the pension. Once a pension has commenced, a deduction notice (including a variation to a valid notice) cannot be accepted in relation to contributions made prior to commencement.
The transfer balance cap applies to the amount of accumulated superannuation benefits that can be transferred into the retirement (tax-free pension) phase. The transfer balance cap is $1.6 million for 2017-18, 2018-19, 2019-20 and 2020-21.
The general transfer balance cap will increase to $1.7 million on 1 July 2021. Where a client has met a condition of release and has yet to commence a pension or is yet to use their full transfer balance cap, consider delaying the commencement of the pension until 1 July 2021 to allow access to the full/partial indexation of their transfer balance cap, therefore increasing the amount of capital that can be held in the tax free pension phase. The benefits of receiving full/partial indexation of the transfer balance cap needs to be compared to the potential loss of tax free income for the 2020-21 financial year.
SMSF trustees should ensure all pension-related events (e.g., pension commencement values) are appropriately documented, as this information will need to be reported to the ATO via the new transfer balance account report.
ATO: Indexation of general transfer balance cap