Commencing a TRIS
When commencing a TRIS, you need to know about:
Preparing to offer a TRIS
It is not compulsory for your SMSF to offer members a TRIS, although your SMSF may pay a TRIS if the fund's trust deed allows this type of pension to be paid.
Before starting to pay any pension, we recommend that you seek the advice of a professional such as an accountant, financial planner or actuary.
Features of a TRIS
A TRIS must satisfy the following standards in the SIS Regulations:
- It must be an account-based pension. This means
- there must be a payment from the pension at least once each year
- an account balance must be attributable to the recipient of the pension
- each year, a specified minimum amount must be paid to the recipient (see Paying the minimum annual pension payment amount)
- the capital value of the pension and the income from it cannot be used as a security for a borrowing
- the pension can only be transferred to another person on the death of the recipient.
- The total payments made in a year must not exceed 10% of the account balance on the commencement of a TRIS for the year it starts or on 1 July for each subsequent year. See Maximum annual pension payment limit.
- It must meet the restrictions on the commutation of the pension. See Restrictions on withdrawals.
If you do not meet the standards in the SIS Regulations in an income year, both of the following apply:
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- You, as trustee, have not been paying an income stream at any time during the year.
- The super income stream (that is, the TRIS) ceases for income tax purposes.
Setting up a TRIS
When a member asks to commence a TRIS you should first establish the amount of benefits they have in the SMSF. To do this, refer to the valuation guidelines for SMSFs to help you establish the value of all the fund's assets and liabilities and each member's share of the net value of the fund.
You should also determine the amount of each preservation class of benefits the member has in the SMSF. A member may have a mix of unrestricted non-preserved benefits, restricted non-preserved benefits and preserved benefits.
If the member chooses to commence a TRIS using an amount that is less than their total super benefits in the SMSF, you may choose, but do not have to, allocate the preservation classes of the member's benefits to the TRIS.
When commencing to pay a TRIS, you are required to treat the amount supporting the income stream as a separate interest in accordance with the income tax laws. This means that on the commencement day of the TRIS you must determine the amount of the tax-free and taxable components of the separate interest.
Members cannot choose which tax components they wish to start the TRIS with. The tax components of the separate interest will be in the same proportions as the tax components of the member's non-pension interest from which the amount was sourced to commence the TRIS just prior to commencing the TRIS.
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