Running a TRIS
When running a TRIS, you need to know about:
If you are paying a TRIS, you should maintain appropriate records that:
- reflect the value of the TRIS at varying times, including at commencement 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 (including by adjusting the preservation classes of the member’s benefits)
- show the share of the fund's earnings allocated to the TRIS.
The earnings allocated to the TRIS must be added to the member's preserved benefits.
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It is very common for contributions to be made for a member while the member is being paid a TRIS. As a contribution received after a pension has started cannot be added to the capital supporting the pension, 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. See Restrictions on withdrawals about the circumstances in which you can commute a TRIS.
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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 based 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 does not pay the minimum annual pension payment amount, the super income stream (that is, the TRIS) ceases for income tax purposes. See Failing to meet the standards.
Priority of cashing benefits
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:
- first, from any unrestricted non-preserved benefits
- second, from any restricted non-preserved benefits
- third, from any preserved benefits.
However, you do not 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, one that does not have 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.
This means that until the member has satisfied a condition of release with a 'nil' cashing restriction any unrestricted non-preserved benefits of theirs that are 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 there are enough unrestricted non-preserved benefits to pay the lump sum to ensure there is no breach of the pension standards.
Tax implications for the fund 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 and exempt from tax.
If you are 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 will generally not 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.
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.
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Satisfying a condition of release while paying a TRIS
When a member who has reached their preservation age and commenced a TRIS subsequently retires or satisfies another condition of release with a 'nil' cashing restriction, the pension does not cease. The pension continues and all benefits generally become unrestricted non-preserved benefits.
Satisfying a condition of release with a 'nil' cashing restriction means that the pension is no longer subject to the following restrictions generally characteristic of a TRIS:
- The maximum annual pension payment limit no longer applies
- Some of the commutation restrictions that affect a TRIS will cease to apply.
See Restrictions on withdrawals from a TRIS.
Restrictions on withdrawals from a TRIS
A TRIS is like any other account-based pension, with two major exceptions:
- A member 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.
In addition to these restrictions, 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. See Partial commutation from a TRIS.
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
- sole purpose of the commutation is to pay a super contributions surcharge liability or to give effect to a payment split under family law.
See Full commutation of a TRIS.
These restrictions apply when, but do not prevent, a member from choosing to commute a TRIS to return their super benefits to accumulation or to purchase another non-commutable income stream or TRIS.
Partial commutation from a TRIS
Restrictions on withdrawals from a TRIS do not 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.
As trustee, you need to be aware that 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 that partial commutation is greater than or equal to the remaining amount of the minimum annual pension payment amount that has to be paid for that financial year
- a proportion of the minimum annual pension payment amount is paid from the TRIS in that year before the partial commutation. That proportion is equal to the number of days in the financial year before the partial commutation during which the pension is payable divided by the number of days in the year
- the payment counts towards their minimum annual pension payment amount, unless it is rolled over within the super system
- the payment does NOT count towards the maximum annual pension payment limit. See the maximum annual pension payment limit from a TRIS
- 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. See Setting up a TRIS
- the payment can be made by way of an asset transfer, known as an in-specie payment.
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. See Restrictions on withdrawals from a TRIS.
In calculating the maximum annual pension payment limit for a TRIS:
- do not 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
- do not 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 we may penalise you as trustee
- the TRIS ceases for income tax purposes at the start of that income year. This means that the fund will not be entitled to treat any income or capital gains as exempt current pension income for the year
- the member's account balance is no longer taken to be supporting a TRIS and therefore 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.