{"id":7499,"date":"2017-07-07T16:35:59","date_gmt":"2017-07-07T06:35:59","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=7499"},"modified":"2018-08-15T13:44:35","modified_gmt":"2018-08-15T03:44:35","slug":"whats-status-transition-retirement-income-stream","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/ato\/whats-status-transition-retirement-income-stream\/","title":{"rendered":"What\u2019s the status of the transition to retirement income stream?"},"content":{"rendered":"

Daniel Butler<\/a> (dbutler@dbalawyers.com.au), Director, DBA Lawyers<\/p>\n

\"\"The transition to retirement income stream (\u2018TRIS\u2019) is entering a new era on 1 July 2017 where most will want the TRIS to enter retirement phase as soon as possible to gain access to an earnings tax exemption. A new law has provided a roadmap for this TRIS reclassification, but quirks and traps still exist.<\/p>\n

Rationale for the TRIS<\/h3>\n

The rationale for initially introducing the TRIS was to provide people with some limited access to their superannuation monies (in the form of a pension) upon attaining their preservation age, without the person needing to retire.<\/p>\n

Prior to 1 July 2017, there have been many who have sought to commence a TRIS on attaining preservation age. During this period, a fund has been exempt from the usual 15% income tax in respect of the earnings on assets supporting the TRIS.<\/p>\n

However, from 1 July 2017, earnings on assets supporting a TRIS will no longer be eligible for the exempt current pension income exemption (pension exemption). Only retirement phase<\/em> pensions, such as account-based pensions (\u2018ABPs), will be eligible for the pension exemption. In particular, a TRIS is expressly excluded from being in the \u2018retirement phase\u2019 under s\u00a0307-80(3) of the Income Tax Assessment Act 1997<\/em> (Cth) (\u2018ITAA 1997\u2019).<\/p>\n

In explaining these changes, the explanatory memorandum to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the formal explanation that accompanied the 2016 law changes) states:<\/p>\n

14.273 TRIS were intended to help older workers transition to retirement by allowing them to access their superannuation to supplement a reduction in their salary from working fewer hours. In practice these arrangements are used almost exclusively to reduce tax payable without a reduction in working hours, and to take advantage of the tax free earnings in retirement phase.<\/p>\n

14.274 Reducing the tax concessional nature of TRIS would ensure they are fit for purpose and not primarily accessed for tax minimisation purposes.<\/p>\n

Due to this difference in tax consequences of a TRIS compared to an ABP, many might want to be able to access an ABP as soon as possible and thereby access the tax-free earnings phase. The main conditions of release required to commence an ABP are to retire for the purposes of superannuation law or attain 65 years of age. The question is then: what is needed at this point to convert a TRIS to an ABP?<\/p>\n

New law allows \u2018auto-conversion\u2019 of a TRIS for tax purposes<\/h3>\n

The Treasury Laws Amendment (2017 Measures No. 2) Bill 2017 was passed on 15 June 2017 and received royal assent on 22 June 2017. The new law is premised on the assertion in the explanatory memorandum that a \u2018superannuation income stream that is established as a TRIS will always retain its character as a TRIS [and a TRIS is prevented from being] in the retirement phase even after the holder later satisfies a condition of release with a nil cashing restriction\u2019. However, the new law fixes this problem by allowing a TRIS to enter retirement phase (and gain the pension exemption at the fund level) when the member:<\/p>\n