Failing to meet the standards
Once a TRIS commences you, as trustee, must ensure that all the relevant standards in the SIS Regulations are met at all times. If the super standards are not met in an income year both of the following apply:
- The trustee has not been paying an income stream at any time during the year.
- The super income stream (the TRIS) ceases for income tax purposes.
If your fund has failed to meet the pension standards because the trustee has not paid the minimum annual pension payment amount, there are limited circumstances where the Commissioner may accept that the pension did not cease. This may allow the fund to continue to claim ECPI where the TRIS is in the retirement phase, as well as a number of other general consequences.
However, your SMSF can't continue to claim ECPI for a TRIS that has ceased because the maximum annual pension payment limit of 10% has been exceeded.
See also:
SMSFs: Minimum pension payment requirements – frequently asked questions
Full commutation of a TRIS
A TRIS ceases when a member's request to fully commute their TRIS for an entitlement to a lump sum takes effect.
Subject to the preservation status of the benefits, the SMSF's trust deed and the rules of the TRIS, a member can fully commute the TRIS and:
- leave the funds that were supporting the TRIS in the SMSF or roll them over to another complying superannuation fund
- receive a lump sum super benefit if either the
- member has met a condition of release with a nil cashing restriction, or
- amount of the lump sum does not exceed their unrestricted non-preserved benefits.
A member who hasn't met a condition of release with nil cashing restriction and who only has restricted non-preserved benefits or preserved benefits can only fully commute their TRIS and either:
- retain the amount of the commutation lump sum to accumulate within the super system
- commence another non-commutable income stream or TRIS from the SMSF or from another complying super fund.
When the commutation lump sum is returned to accumulation in the SMSF, the tax-free and taxable components will need to be recalculated whenever a new benefit is paid from the fund.
Pensioner in receipt of a TRIS dies
A TRIS ceases as soon as a member in receipt of the pension dies, unless a dependant beneficiary is automatically entitled under the SMSF's trust deed or the rules of the pension, to receive the pension upon the member's death. For example the member's spouse may be paid the member’s benefits in the form of a pension. This is known as a reversionary pension (sometimes referred to as a reversionary income stream). For a TRIS that is a reversionary pension:
- The tax-free and taxable components of the pension will continue to be in the same proportions as determined when the TRIS commenced.
- The balance will count towards the beneficiary's transfer balance cap.
- The pension will no longer be non-commutable or subject to the maximum annual pension payment limit.
As trustee, you must ensure that the minimum annual pension payments continue to be made. In the year the member dies, the minimum annual pension payment amount is based on the member's age. In subsequent years, it is based on the age of the dependant beneficiary who became automatically entitled to receive the pension upon the member's death.
When a TRIS is not a reversionary pension, the TRIS ceases as soon as the member in receipt of the pension dies. When that happens the trustee does not need to make the minimum annual pension payment unless required to do so by the SMSF trust deed or the rules of the pension.
See also:
- Taxation Ruling 2013/5 Income tax: when a superannuation income stream commences and ceases, discusses death of a member at paragraphs 29 and 121 to 129.
- Death of a member
- SMSFs: starting and stopping a pension
- GN 2019/1 - Changes to transition-to-retirement income streams