What is a taxpayer's personal transfer cap?

The personal transfer cap of a taxpayer is the transfer cap which applies to the financial year in which the taxpayer first commences a pension to which the earnings tax exemption applies.

If Mark commenced an account-based pension on 30 September 2022, his personal transfer cap would be the general transfer cap which applied for 2022/23 – this cap could be $1.8m.

If Mark entirely utilises his transfer cap in 2022/23, he will not be entitled to access any subsequent indexation of the cap.

Alternatively, if Mark only utilised 75% of his transfer cap in 2022/23 he would be entitled to the unused balance of the cap applicable at the time of first transfer and 25% of any increase in general cap due to indexation.

Example:

Financial Year

General Transfer Cap

Utilisation

2022/23

$1,800,000

Mark commences a pension with an initial balance of
$1,350,000

Transfer cap balance

Cap for year

Amount used

Amount remaining

$1,800,000

$1,350,000

$450,000

or 25%

2025/26

$1,900,000

Mark commences a second pension with an initial
balance of $600,000

Transfer cap balance

Cap for year

Amount used

Amount
remaining

$475,000

$600,000

Excess portion
is $125,000 or
20.8%

As Mark has an unused cap entitlement of 25% in respect of 2022/23, his personal transfer cap balance in respect of 2025/26 is calculated as the unused portion ($450,000) plus 25% of the indexation increase (being 25% of $100,000). In dollar terms this means his transfer balance cap is $475,000 (ie $450,000 plus $25,000). Consequently, by starting a second pension with a pension account balance of $600,000, Mark’s second pension is in excess of $125,000 (being the excess of $600,000 over $475,000).