Transfer Balance Cap to increase to $2m on July 1

Following the release of the Consumer Price Index (CPI) for the December 2024 quarter on the 29th of January, it has been confirmed, based on current legislation, that the general Transfer Balance Cap (TBC) will increase from $1.9M to $2M from 1 July 2025.

The Transfer Balance Cap is a lifetime limit on the amount an individual can move from a superannuation accumulation account to the tax-free retirement phase. This cap is designed to ensure that tax benefits from superannuation are distributed fairly and to prevent very wealthy individuals from taking excessive amounts into their tax-free retirement accounts.

The increase in the TBC is good news for retirees. With the new $2 million cap, couples can have a total of $4 million in the tax-free retirement phase.

Indexation of the general TBC also has a flow-on effect on other rates and thresholds from 1 July 2025:

• The Defined Benefit Income cap, currently $118,750 pa will be increased to $125,000. This is the threshold above which tax concessions are reduced for individuals receiving income from capped defined benefit income streams.
  
• The limit which prohibits an individual from claiming the tax offset for superannuation contributions they make on behalf of their spouse will increase from $1,900,000 to $2,000,000.
  
• The limit which determines if an individual is entitled to a government super co-contribution will increase to $2,000,000.

Implications of the TBC Increase

If you have more than $1.9 million in your superannuation and are ready to start a retirement income stream, you might want to wait until after 1 July 2025 to take advantage of the new cap. However, this decision depends on various factors, including the tax on earnings while waiting. Make sure you speak to your adviser about this first.

It’s important to note that the new $2 million cap will only be available to those who have never used any of their TBC before 1 July 2025. If you have already used your TBC, you will not benefit from the increase.

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