The transfer balance cap is the lifetime limit on how much superannuation you can move into tax-free retirement phase accounts. For 2025–26 the general cap is $2 million, and it rises to $2.1 million on 1 July 2026.1Australian Taxation Office. Transfer Balance Cap The cap is measured across every retirement phase income stream you hold with every provider combined, not per account. Your own limit is a personal cap that locks in when you first start a retirement phase pension, and it may sit below the general figure if you have already used part of it.
Current Thresholds
The general cap moves in $100,000 increments tied to the Consumer Price Index. The confirmed figures are:
- 2024–25: $1.9 million
- 2025–26: $2 million
- 2026–27: $2.1 million, effective 1 July 20262Australian Taxation Office. General Transfer Balance Cap Indexation on 1 July 2026
The defined benefit income cap, which equals the general cap divided by 16, is $125,000 for 2025–26 and rises to $131,250 for 2026–27.2Australian Taxation Office. General Transfer Balance Cap Indexation on 1 July 2026
General Cap vs Personal Cap
Division 294 of the Income Tax Assessment Act 1997 sets a general cap that applies economy-wide and a personal cap tied to your individual circumstances. The general cap is the headline figure that indexes over time. Your personal cap locks in at whatever the general cap happened to be on the day you first started a retirement phase income stream. If your first pension began in 2017–18, your starting personal cap was $1.6 million.
The distinction matters because your personal cap only grows through proportional indexation, and only if you haven’t used all of it. The ATO looks at the percentage of your cap that remains unused and gives you that same percentage of any future increase in the general cap. Use every dollar and you get no indexation at all.3Australian Taxation Office. Calculating Your Personal Transfer Balance Cap
How Proportional Indexation Is Calculated
Take the highest balance your transfer balance account has ever reached and divide it by the general cap that applied on the first day you held that balance. Round the result down to a whole percentage and subtract it from 100. That is your unused cap percentage. Whenever the general cap increases, you receive that percentage of the increase added to your personal cap.4Australian Taxation Office. Calculating Your Personal Transfer Balance Cap
If you are close to starting a pension near a 1 July indexation date, timing can shift your personal cap. Starting after indexation locks the higher general figure in as your personal cap from day one. Starting before means any future increase reaches you only through the proportional formula, which only helps if you leave real headroom.
What Counts Against the Cap and What Frees It Up
Your transfer balance account tracks every movement of capital into and out of retirement phase. Credits count against your cap; debits free space back up. The ATO maintains the account automatically based on fund reporting.
Credits
A credit is recorded whenever you start a new retirement phase income stream, valued at the market value of the supporting assets on the day it begins. Other credits include reversionary death benefit pensions (the credit equals the value of the income stream at the date of death but does not hit your account until 12 months later, giving you time to reorganise your affairs),5Australian Taxation Office. Transfer Balance Account non-reversionary death benefit pensions (credited on the date you become entitled),6Australian Taxation Office. Superannuation Reform: Superannuation Death Benefits and the Transfer Balance Cap transition-to-retirement pensions the moment they enter retirement phase, and repayments from limited recourse borrowing arrangements under contracts entered on or after 1 July 2017.
Debits
Regular pension payments do not create debits, and neither do investment losses inside the pension account. The events that do reduce your transfer balance include:
- Commutations, where you convert all or part of a pension back to a lump sum. You can withdraw the money or roll it into an accumulation account, where earnings are taxed at 15% instead of being tax-free.5Australian Taxation Office. Transfer Balance Account
- Structured settlement contributions from a personal injury payment, provided you contribute within 90 days of receiving the payment or the settlement order taking effect (whichever is later) and notify the fund at or before the contribution.
- Family law payment splits, effective when the split becomes operative under the Family Law Act 1975 or when you first have a transfer balance account, whichever is later.
- Reductions in a defined benefit pension due to changed circumstances, losses from fraud or bankruptcy, and income streams that stop being in retirement phase or fail compliance standards.
That last item catches people out. If a fund fails to meet the pension payment standards for a financial year, the income stream can lose retirement phase status, which creates a debit and disrupts the tax-free treatment.
Defined Benefit Pensions Work Differently
Defined benefit pensions cannot simply be commuted to free up cap space. The credit entering your transfer balance account is calculated by multiplying your annual pension entitlement by 16.7Australian Taxation Office. Transfer Balance Cap – Capped Defined Benefit Income Streams A $100,000 annual pension therefore generates a $1.6 million credit. For non-commutable life expectancy or market-linked products, the multiplier is the number of remaining years rounded up.
If your defined benefit income exceeds the defined benefit income cap ($125,000 for 2025–26), extra tax applies. For members aged 60 or older, half of the taxed-element income above the cap is included in assessable income. Untaxed-element income above the cap goes into assessable income in full, and the usual 10% tax offset is progressively reduced.
If you hold both a defined benefit pension and an account-based pension and the combined balance exceeds your personal cap, you must commute the account-based pension to fix the breach. You cannot commute the defined benefit stream. Large defined benefit entitlements can therefore leave very little room for any account-based pension.
Going Over the Cap
When your transfer balance account exceeds your personal cap, the ATO issues an excess transfer balance determination. The determination states the excess amount and the date by which you must commute enough from retirement phase to fix it. The due date is specified in the determination itself rather than being a fixed statutory number of days.8Australian Taxation Office. Excess Transfer Balance
On top of commuting the excess, you owe tax on the notional earnings the ATO calculates on the over-cap amount. These are not your actual returns. The ATO uses a formula based on the 90-day bank accepted bill yield plus seven percentage points, divided by the days in the calendar year. The earnings compound daily from the date you first exceeded the cap until the ATO issues the determination or you fix the excess, whichever comes first.
The excess transfer balance tax rate is 15% of those notional earnings for a first breach. A second breach doubles the rate to 30%.8Australian Taxation Office. Excess Transfer Balance Daily compounding makes delay expensive.
If You Don’t Act by the Due Date
The ATO issues a commutation authority directly to your super fund. The fund then has 60 days from the date of the authority to remove the specified amount from your retirement phase account, and there is no extension.9Australian Taxation Office. Commutation Authorities for SMSFs If the fund misses the window, the income stream stops being treated as a retirement phase income stream, and the fund loses its exempt current pension income on those assets. The fund must also notify you in writing of what it did within the same 60 days.
Once the ATO issues the authority, you lose control over which pension gets commuted. If you hold pensions across multiple providers, that choice can matter for tax and estate planning, so acting yourself before the deadline is usually preferable.
Modified Cap for Child Death Benefit Recipients
Children receiving a death benefit pension from a deceased parent operate under a modified cap rather than the standard personal cap. It applies to children under 18, those aged 18 to 25 who were financially dependent on the deceased, and those with a permanent disability.10Australian Taxation Office. New Transfer Balance Cap – Child Death Benefit Recipients (GN 2017/13) The modified cap is built from “cap increments” that depend on whether the parent had a transfer balance account and, if so, the child’s share of the parent’s retirement phase interest. Any excess the parent carried reduces the child’s increment. Unless the child has a permanent disability, all death benefit income streams must be cashed out of the super system by the time the child turns 25.
SMSF Reporting Obligations
If you run a self-managed super fund, you are responsible for lodging transfer balance account reports (TBARs) with the ATO on a quarterly basis, regardless of the member’s total super balance.11Australian Taxation Office. TBAR Lodgment Reminder for April 2026 If no reportable event occurred, no TBAR is required. The March 2026 quarter TBAR, for example, is due 28 April 2026. If a member exceeds their personal cap, the TBAR may be due sooner than the regular quarterly deadline. APRA-regulated funds handle this reporting internally on behalf of their members.