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Help! I still don’t understand how all the super caps work
The super system features a range of limits designed to restrict tax advantages to levels parliament has deemed reasonable – and their interaction is complex.
John Wasiliev
Q: In answering a recent question about how transfer balance caps work and how the general transfer balance cap is used as a threshold to determine the non-concessional contributions cap, there was no explanation given on how this cap is determined if the super balance is less than the general cap. The reader was advised that if his super balance on June 30 in the previous year was less than the general cap, his non-concessional cap would be $120,000. I understand that if the account balance is greater than the general cap – currently $1.9 million – then the non-concessional cap with be $0. But what if the balance is only $50,000 short of the general cap, say $1.85 million? How can he still have a non-concessional cap of $120,000?
Also, just to clear things up, can you clarify how the proportion of “unused cap percentage” is calculated if you have used up some of your cap and wish to make further contributions. Mark.
A: When it comes to determining someone’s non-concessional contributions cap for a particular year, the rule is that their cap will be either $0 or equal to the standard non-concessional contributions cap – that is, $120,000 for both the 2024-25 and 2025-26 financial years. There is no in-between.
Leigh Mansell, director of SMSF technical and education services at Heffron, says the amount of their non-concessional contributions cap for a particular year is determined by their total super balance on the previous June 30.
Someone with a total balance of $1.85 million at June 30 last year – which is less than the general transfer balance cap of $1.9 million for the current 2024-25 financial year – has a non-concessional contributions cap of $120,000 for the 2024-25 financial year.
In fact, says Mansell, even if their total superannuation balance was just under $1.9 million at $1,899,999 on June 30, their non-concessional contributions cap for the 2024-25 financial year is still $120,000.
In contrast, someone with a total super balance equal to or greater than (again, even if only slightly over) the general transfer balance cap of $1.9 million for the 2024-25 financial year has a non-concessional contributions cap of $0 for the 2024-25 financial year.
Some people, however, are able to “bring forward” their non-concessional contributions cap for the following year, says Mansell, and perhaps the year after that too. Whether they can in a particular year depends on a few things, including their total super balance as of June 30 from the year before and their age (they need to be under 75). Moreover, they cannot be midway through an existing bring forward period.
To illustrate this, Mansell says that for the 2024-25 financial year, someone who had a total super balance of less than $1.66 million at June 30 last year could make non-concessional contributions of up to three times the general cap – that is, up to $360,000 – without exceeding their non-concessional contributions cap.
“The mechanics of working out the increase to your personal transfer balance cap are complicated.”
If their total super balance at June 30 last year was higher, say $1.66 million or more, but under $1.78 million, they could make non-concessional contributions of up to two times the general cap – up to $240,000 – without exceeding their non-concessional contributions cap.
Changing tack to the
personal transfer balance cap rules that apply the limit on how much you can transfer into retirement phase pensions. For those who have never fully used all of their personal transfer balance cap, every time the
general transfer balance cap increases, a proportion of that increase will be added to a person’s personal cap.
The mechanics of working out the increase to your personal transfer balance cap are complicated. Every time the general cap increases, you identify the highest amount you’ve ever had in your transfer balance and express that as a proportion of your personal cap at that time.
This proportion represents the amount you’ve “used” of your personal cap. The proportion is rounded down to the nearest whole number, and the “unused” percentage is simply the difference between 100 per cent and your highest ever “used” percentage.
To illustrate this, say a member’s personal cap was initially set at $1.6 million, equal to the general transfer balance cap between 2017-18 and 2020-21 and the highest amount they have ever had in their transfer balance was $871,000 (i.e. the value of their super when it moved into retirement phase).
Then $871,000 divided by $1.6 million is 54.44 per cent, but this is rounded down to 54 per cent and represents the “used” percentage. The “unused” percentage is then 46 per cent (that is 100 per cent minus 54 per cent).
Their personal cap would have increased to $1.646 million on 1 July 2021 (i.e. 46 per cent of the $100,000 increase in the general transfer balance cap), then increased to $1.738 million on 1 July 2023 (i.e. 46 per cent of the $200,000 increase in the general transfer balance cap).
Pulling it altogether
Pulling these things together, say a member had a total balance of $1 million as of June 30 last year, and they wanted to make non-concessional contributions of $100,000 a year for the next three years. As long as their total super at the previous June 30 remains below the relevant general transfer cap threshold for the financial year in which they wish to make the contribution, then the $100,000 non-concessional contribution will be within their contributions cap.
If they made a $100,000 non-concessional contribution in the 2024-25 financial year, they could also commence a new account-based pension this financial year because they have plenty of room to do so in their personal transfer balance cap – they currently have a cap of $1.738 million, and they’ve only used $871,000 of it.
If they commenced a new account-based pension this financial year, the highest ever amount in their transfer balance would increase to $971,000. When the general cap increases by $100,000 from $1.9 million to $2 million on July 1 this year, their personal transfer balance cap will increase too.
Their $971,000 transfer balance will be divided by their existing $1.738 million personal transfer balance cap. This “used” percentage of 55.87 per cent will be rounded down to 55 per cent and their personal cap will rise by 45 per cent of the $100,000 increase in the general transfer balance cap – that is it will increase by $45,000 to $1.783 million on 1 July this year.
If their total super balance at 30 June this year was to remain below $2 million, they could make another $100,000 non-concessional contribution in the 2025-26 financial year. They could commence another new account-based pension next financial year because they still have plenty of room to do so in their personal transfer balance cap – they’d have a cap of $1.783 million and they’d have only used $971,000 of it.
And depending on their particular figures, the same process could be repeated in the following year.