Private ruling: Transfer balance cap
Date of advice: 5 October 2017
Published: February 2018
Ruling period: Income year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Does the defined benefits income stream paid to you from a defined benefit superannuation scheme (the Fund) form a part of the $1,600,000 transfer balance cap? | A1: Yes

Relevant facts and circumstances: You are a trustee and member of a self-managed superannuation fund. You were also a member of the Fund. You retired more than 10 years ago. You commenced to receive a fortnightly defined benefits income stream benefit from the Fund before 1 July 2017. The special value of your defined benefits income stream is a specified amount.

Relevant legislative provisions: Income Tax Assessment Act 1997, section 294-15. | Income Tax Assessment Act 1997, section 294-20. | Income Tax Assessment Act 1997, section 294-25. | Income Tax Assessment Act 1997, section 294-35 | Income Tax Assessment Act 1997, section 303-2. | Income Tax Assessment Act 1997, section 307-80.

Reasons for decision: Summary: The specified special value of your defined benefits income stream is included in the $1,600,000 transfer balance cap. | Detailed Reasoning - Transfer balance account: Pursuant to section 294-15 of the Income Tax Assessment Act 1997 (ITAA 1997), a person commences to have a transfer balance account if they have, at any time, been the retirement phase recipient of a superannuation income stream. The transfer balance account commences on the later of 1 July 2017 or the day that a person first starts to be a retirement phase recipient of a superannuation income stream. Subsection 294-20(1) of the ITAA 1997 states that a person is a retirement phase recipient of a superannuation income stream at a time if they have a superannuation income stream in the retirement phase at that time and a superannuation income stream benefit is payable at that time. Subsection 307-80(1) of the ITAA 1997 states that a superannuation income stream is in the retirement phase if a superannuation income stream benefit is payable from it at that time. In this instance, you receive a defined benefits income stream benefit from the Fund. Consequently, you are considered to be the recipient of a retirement phase superannuation income stream. | Detailed Reasoning - Transfer balance cap: In accordance with subsection 294-35(1) of the ITAA 1997, a person’s ‘transfer balance cap’ for the financial year in which they first start to have a transfer balance account is equal to the ‘general transfer balance cap’ for that financial year. Subsection 294-35(3) of the ITAA 1997 sets the general transfer balance cap at $1,600,000 for the 2017-18 financial year. For a later financial year, the transfer balance cap is equal to a person’s transfer balance cap for the previous year, subject to proportional indexation. | Detailed Reasoning - Components of transfer balance cap: Section 294-25 of the ITAA 1997 sets out when a transfer balance credit arises and the amount of the credit. Relevantly, Item 1 of the table in subsection 294-25(1) of the ITAA 1997 specifies that where an individual is the recipient of a retirement phase income stream just before 1 July 2017, a credit of the value of the superannuation interest that supports the income stream just before 1 July 2017 arises in the transfer balance account on 1 July 2017. As you were a recipient of a retirement phase income stream just before 1 July 2017, a credit to the value of the superannuation interest that supports your income stream, being the specified special value of your income stream, arises in your transfer balance account. This has the effect of reducing your transfer balance cap space. Consequently, your defined benefits income stream is counted towards the $1.6 million transfer balance cap.