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  • SMSFs and transition to retirement pension payments

    We are aware of a number of articles and external presentations over the last 12 months which identify how a member of a self-managed super fund (SMSF) in receipt of a transition to retirement income stream (TRIS) can maximise access to the low rate cap amount for super lump sum payments.

    In certain circumstances a member can elect under regulation 995-1.03 of the Income Tax Assessment Regulations (ITAR) 1997 to treat a TRIS payment that would otherwise be a super income stream benefit for income tax purposes as a super lump sum for those purposes and therefore access the low rate cap. This cap is reduced by any amount to which the low rate cap was previously applied and in 2015–16 is capped at $195,000. The member must make their election before the payment is made from the SMSF.

    If a member chooses to make this election for income tax purposes, it is important to recognise that the nature of the payment from the SMSF does not change for the purposes of the super regulatory law.

    If the election is made, the complexity surrounding these transactions in conjunction with the special features of a TRIS, give rise to a number of issues that a trustee needs to consider to ensure the SMSF’s compliance with the superannuation regulatory laws and the income tax laws.

    In particular, we remind trustees that:

    • It is the nature of a TRIS payment for superannuation regulatory law purposes that is relevant to a trustee’s compliance with the 10% TRIS payment annual limit.
    • If the TRIS payment is not a lump sum for super regulatory law purposes, it cannot be paid by an in-specie asset transfer.
    • Electing for a TRIS payment to be treated as a super lump sum for income tax purposes may affect the amount of the SMSF’s exempt current pension income for an income year and whether particular fund assets are segregated current pension assets.
    • Electing for a TRIS payment to be treated as a superannuation lump sum for income tax purposes will affect which super-related tax offset/s may apply to the payment.

    See also:

      Last modified: 11 Jan 2016QC 47710