Transfer Balance Cap Rises to $1.98M

What It Means for SMSF Strategy

In Baya Casal v Deputy Commissioner of Taxation [2025] FCA 87, the Federal Court confirmed that a taxpayer was entitled to treat her termination payment as a genuine redundancy, despite the employer offering an “alternative” role.

The twist? The alternative role had the same duties, but with reduced hours, changed days, and lower pay. The Court found that wasn’t equivalent — and the taxpayer’s original role was, in fact, redundant.

A quick refresher – what is the TBC?

The transfer balance cap is the maximum amount a person can transfer into a retirement phase income stream (like an account-based pension) without triggering tax consequences.

Any excess must remain in accumulation phase, where earnings are taxed at 15%.

There’s also a personal transfer balance cap, which is tied to how much of the general cap a person has already used. Since 1 July 2021, the personal cap has become proportionally indexed, so each increase affects individuals differently.

Who gets the full increase?

Only those who haven’t yet started a retirement phase pension (i.e. with a TBC of $0) will benefit from the full $80,000 increase to $1.98 million.

For everyone else, the increase is proportional — meaning their cap will rise by a fraction based on how much of it they’ve already used.

Example:

A client who previously used 50% of the $1.9M cap would see their personal TBC increase by 50% of the $80,000 indexation = $40,000.
So their new personal cap from 1 July 2025 would be $1.94M.

Once a person hits their cap, indexation no longer applies to them — their personal TBC is locked.

Why this matters

This update is more than a technical tweak — it impacts a range of strategic decisions:

Timing of pension commencements: If a client is close to retirement phase, delaying until after 1 July 2025 could unlock more tax-free pension room.
Re-contribution and reversionary pension planning: Higher TBCs give more flexibility when managing partner pensions and death benefit planning.
Estate equalisation: The increase can support strategies where super balances are being rebalanced between spouses for future pension eligibility.
Non-concessional contributions: Eligibility to make NCCs is tied to TBC thresholds — so the higher cap may open the door for new contributions where the previous $1.9M cap cut them off.

What practitioners should do now

Identify clients nearing pension phase who haven’t yet triggered their TBC — they may benefit from deferring commencement until 1 July.

Model proportional indexation for clients who’ve already used part of their cap — the change may allow additional pension phase contributions.

Check NCC strategies — the higher threshold could allow catch-up contributions in FY26, especially under the bring-forward rules.

Review reversionary and estate plans, especially where a surviving spouse's ability to retain pensions depends on cap space.

Final Thoughts

The TBC is one of those technical thresholds that can either limit or unlock strategic opportunities in retirement planning. With the cap rising to $1.98M, there’s now more room to manoeuvre — but only for those who act early and understand the interaction between timing, personal caps, and contribution rules.