Record keeping
If you're paying a TRIS, you should maintain appropriate records that:
- reflect the value of the TRIS at varying times, including at commencement, when it enters retirement phase and at 1 July each year
- show any benefit payments made (including whether they are made as pension payments or lump sum payments)
- reflect how the payments are made (which includes adjusting the preservation classes of the member’s benefits where applicable)
- record the date the TRIS entered into the retirement phase
- show the share of the fund's earnings allocated to the TRIS.
It's very common for contributions to be made for a member while they are being paid a TRIS. A contribution received after a pension has started can't be added to the capital supporting the pension. So, you, as trustee, will be required to account for the contributions, and any rollovers, received for the member in a way that keeps them separate from the account balance of the TRIS.
If a member wants to combine accumulation monies (including a contribution) with their existing TRIS, they must first choose to fully commute the original TRIS and then apply for a new pension using the increased balance.
Paying the minimum annual pension payment amount
You must pay the member the minimum annual pension amount each financial year. The minimum annual pension amount is calculated on the balance of the member's pension account at commencement or at 1 July for every subsequent year and the member's age.
If the pension commences on a day other than 1 July, you work out the minimum amount for the first year proportionately to the number of days remaining in the financial year, including the start day.
If the commencement day of the pension is on or after 1 June in the financial year, no payment is required in that financial year.
An amount rolled over to another super fund or retained in the fund, is not counted when working out if the minimum annual pension amount has been paid in a particular year. However, you do count a payment split under family law.
If the trustee doesn't pay the minimum annual pension payment amount, the super income stream (the TRIS) ceases for income tax purposes.
See also:
Entering retirement phase
A TRIS will move into the retirement phase when the member meets one of the following conditions of release:
- age 65
- retirement
- permanent incapacity, or
- has a terminal medical condition.
A TRIS will move automatically into the retirement phase as soon as the member reaches age 65, or if the superannuation income stream starts to be paid to a reversionary beneficiary after the member's death. For the other conditions of release listed above, the member needs to notify their super provider for the TRIS to move into the retirement phase. In these cases the superannuation income stream will move into the retirement phase at the time the provider is notified.
Satisfying a condition of release with a nil cashing restriction means that the pension is no longer subject to the restrictions that are generally characteristic of a TRIS, however the pension does not cease. The pension continues and all benefits generally become unrestricted non-preserved benefits.
Subject to the rules of the pension:
- The maximum annual pension payment limit no longer applies.
- Some of the payment and commutation restrictions that affect a TRIS will cease to apply.
It also means that the TRIS meets the definition of a retirement phase income stream. Entering the retirement phase has the following consequences for a TRIS:
- The value of the pension at that date is counted towards the member's transfer balance cap, that is, it is a transfer balance credit.
- Some or all of the fund's income and capital gains may be treated as exempt current pension income and exempt from tax from the date the TRIS moves into the retirement phase.
See also:
- Conditions of release
- GN 2019/1 - Changes to transition-to-retirement income streams
Priority of cashing benefits
You don't generally need to adjust the fund's record of the member's preservation classes if the member has satisfied a condition of release with a nil cashing restriction. That is, a condition of release without a restriction on the amount of benefit that can be paid or how it can be paid (such as attaining age 65). When a condition of release of that kind is satisfied, all of the member's benefits generally become unrestricted non-preserved benefits. However, most TRISs when they are commenced are subject to cashing restrictions.(refer to restrictions further down on this page).
As each TRIS payment is made, you must adjust the fund's record of the member's preservation classes allocated to the TRIS. If the member has a combination of any of preserved, restricted non-preserved or unrestricted non-preserved benefits allocated to the TRIS, the payments from the TRIS must be deducted from the preservation classes in the following order:
- firstly, from any unrestricted non-preserved benefits
- secondly, from any restricted non-preserved benefits
- thirdly, from any preserved benefits.
This means until the member has satisfied a condition of release with a nil cashing restriction, any unrestricted non-preserved benefits of theirs allocated to the TRIS (which would otherwise be fully accessible as a lump sum super benefit) are diminished by the annual pension payments from the TRIS.
As a trustee, before you pay a lump sum benefit from a TRIS to a member, you need to check whether the member has satisfied a condition of release with a nil cashing restriction, and if not, whether there are enough unrestricted non-preserved benefits to pay the lump sum to ensure there is no breach of the pension standards.
See also:
Tax implications when paying a TRIS
When you, as a trustee of a complying super fund, are liable to pay a super income stream to a member of the fund in a particular income year, some or all of the fund's income and capital gains may be treated as exempt current pension income (ECPI) and exempt from tax.
From 1 July 2017, whether or not you are eligible to treat some of the fund's income from the assets supporting the payment of a TRIS as ECPI income will depend on if the TRIS is in the retirement phase.
Earnings from assets supporting a TRIS that is not in the retirement phase will be taxed at 15%.
See also:
- Exempt current pension income
- GN 2019/1 - Changes to transition-to-retirement income streams
If you're paying super benefits from a TRIS to a member who is aged 60 or over, there is generally no need to withhold tax as the pension payments will generally be received tax-free. The member won't generally have to declare their TRIS income in their tax return.
If you are paying super income stream benefits to a member who is under the age of 60, the taxable and tax-free components determined at the commencement of the TRIS will determine:
- how much of each benefit is assessable income
- how much tax you need to withhold.
The member is generally entitled to a tax offset of 15% of the taxable component of benefits received in the year. The member will need to declare the taxable component of such benefits received in the year in their tax return.
Note: As trustee you will need to confirm whether a member under age 60 wishes to claim the tax-free threshold to ensure the correct amount of tax is withheld.
See also:
Restrictions on withdrawals from a TRIS
A TRIS is like any other account-based pension, with two major exceptions. Until a member has met a condition of release with a nil cashing restriction:
- They can only withdraw a maximum annual pension payment amount of 10% of the account balance calculated on the day the pension commenced for the year the pension commenced, or on 1 July for each subsequent year.
- There are restrictions on the circumstances in which the TRIS can be commuted to cash a lump sum that are additional to the circumstances in which any other account-based pension can be commuted.
When the pension account only contains preserved benefits and/or restricted non-preserved benefits, the ability to commute the TRIS to cash a lump sum is limited to the following circumstances:
- to pay a super contributions surcharge liability
- to give effect to a payment split under family law
- to give effect to a release authority for excess contributions or Division 293 Tax.
However, if the pension account contains unrestricted non-preserved benefits, the member is able to choose to partially commute the TRIS to cash their unrestricted non-preserved benefits as a lump sum from their TRIS at any time.
From 1 July 2017, individuals will no longer be able to elect to treat superannuation income stream benefits as a lump sum for tax purposes. However all partial commutations will be taken to be lump sums under the law.
See also:
The restrictions discussed above don't prevent a member from choosing to commute a TRIS and retaining the amount in their accumulation account, or commencing a new income stream. However, before you fully commute a TRIS, you must ensure that a proportion of the minimum annual pension payment amount is paid from the TRIS in that year. That proportion is equal to the number of days in the financial year during which the pension is payable divided by the number of days in the year. However, you do not need to pay that portion of the minimum annual pension payment amount if either the:
- TRIS has ended on the death of the recipient, or
- sole purpose of the commutation is to pay a super contributions surcharge liability or to give effect to a payment split under family law.
Partial commutation from a TRIS
Restrictions on withdrawals from a TRIS don't prevent you from paying a member all or part of their unrestricted non-preserved benefits. When a member has unrestricted non-preserved benefits as part of their TRIS, they may partially commute the TRIS and receive a lump sum payment up to the amount of their unrestricted non-preserved benefits. It is important to note that when a member meets a condition of release with a nil cashing restriction, all of their super benefits are treated as unrestricted non-preserved benefits.
From 1 July 2017, individuals will no longer be able to elect to treat superannuation income stream benefits as a lump sum for tax purposes. However all partial commutations will be taken to be lump sums under the law.
As trustee, when a member partially commutes their TRIS to receive a lump sum payment consisting of unrestricted non-preserved benefits:
- you must ensure that either
- the account balance of the TRIS immediately after the partial commutation is greater than, or equal to the remaining amount of the minimum annual pension payment amount to be paid for that financial year, or
- a proportion of the minimum annual pension payment amount is paid from the TRIS in the year before the partial commutation. The proportion is equal to the number of days in the financial year before the partial commutation when the pension is payable divided by the number of days in the year
- the payment does NOT count towards the maximum annual pension payment limit. (refer maximum annual pension payment limit further down this page)
- the taxable and tax-free components of the partial commutation payment must have the same proportions as those determined for the separate interest that supports the TRIS when it commenced
- the payment can be made by way of an asset transfer, known as an in-specie payment.
From 1 July 2017, a partial commutation payment no longer counts towards the member's minimum annual pension payment amount.
Maximum annual pension payment limit from a TRIS
Until the day in a financial year when a member has satisfied a condition of release with a nil cashing restriction, you must not pay more than 10% of the pension's account balance calculated on the day the pension commenced for the year the pension started, or on 1 July for each subsequent year.
When working out whether you have stayed below the maximum annual pension payment limit, you ignore any payments you made as a result of any commutation of the TRIS.
In calculating the maximum annual pension payment limit for a TRIS:
- don't reduce the maximum annual pension payment limit for a financial year if the TRIS commenced in that year on a day after 1 July
- the 10% rate does not vary with the member's age
- don't round the maximum annual pension payment amount to the nearest $10.
Paying more than the maximum annual pension payment limit
If a member has only restricted non-preserved benefits or preserved benefits as part of their TRIS, exceeding the maximum annual pension payment limit will be a breach of the super laws as the fund has not adhered to the cashing restrictions that apply to a TRIS.
As trustee, you need to be aware that if you exceed the maximum annual pension payment limit for a year in such circumstances:
- we may make your fund non-complying and penalise you as trustee
- the TRIS ceases for income tax purposes at the start of that income year.
- the member's account balance is no longer seen as supporting a TRIS and any payments made during the year (not just the amount in excess of the limit) will be super lump sums for income tax purposes and lump sums for SIS Regulations purposes
- the lump sum payments are included in the member’s assessable income and are taxed at marginal rates, without any tax offsets. (the payments are treated as early access to the member's super benefits and a breach of the SIS payment standards).