Exposure draft legislation released by the federal government last week contains clarity around changing a transition-to-retirement income stream (TRIS) into an account-based pension and will result in a reduction in the amount of compliance activity required ahead of 1 July.
The Treasury Laws Amendment (2017 Measures No 2) Bill 2017: Superannuation reform package amending provisions confirmed a TRIS would automatically become an account-based pension under the new super rules.
“The key point contained in it for the SMSF sector is the amendment to the TRIS,” SMSF Association head of policy Jordan George told selfmanagedsuper.
“When a TRIS was no longer tax exempt for the earnings for the underlying assets, that when someone has a nil cashing restriction for their condition of release, which normally means they’ve reached 65, the general approach for the industry was that the TRIS would automatically become an account-based pension.
“Through this process of looking at the new laws there were some questions around that with the ATO as to whether that did happen automatically or whether an SMSF trustee had to commute the TRIS and then start a new account-based pension.
“What Treasury has done here is that they’ve legislated for a solution so that people won’t have to commute and then restart the new pension, so when you meet [the] nil cashing restriction condition of release, the TRIS will be treated as though it’s in retirement phase and will get that tax exemption.”
George said that was a good result for SMSFs and superannuation more broadly.
“It will definitely reduce the amount of compliance activity that people will have to undertake coming to 1 July,” he said.
“It does give us confidence now that you can let that TRIS keep running in its original form without having to commute at all and start a new account-based pension.
“This came to Treasury’s attention through industry discussions with the ATO and the work they are doing around the new measures’ implementation.
“We were of the view that if the ATO didn’t see that these TRIS automatically become an account-based pension, then there needed to be clarification to ensure that the treatment, which the industry had been doing for a number of years, was how things would proceed from 1 July – that’s what we’ve got, so it’s a really positive development.”
He added the exposure draft legislation also cleared up questions in relation to TRISs and capital gains tax (CGT) relief.
“These amendments have clarified that you do not have to necessarily commute a TRIS and move assets back to accumulation phase, then restart the pension in order to get CGT relief – it will automatically happen on 1 July,” he said.
“The exposure draft clarifies how the industry expected the law to operate and now we’ve got the certainty. I think they’ll be broadly supported.
“Whenever there are new substantially technical law changes, there are always some consequential amendments that need to be made to tidy things up and that’s very much what this draft is doing.”
The draft legislation gives effect to amendments that resolve issues identified after the passage of the Treasury Law Amendment (Fair and Sustainable Superannuation) Act 2016 and Superannuation (Excess Transfer Balance Tax) Imposition Act 2016 on 23 November 2016.
The exposure draft is open for public consultation with submissions closing on 24 April.
SMSF Owners’ Alliance executive director Duncan Fairweather said: “We’re looking at the draft legislation, but the short time allowed for comment, just five working days taking into account Easter, makes it difficult to decipher and assess its meaning.
“It appears to be clarifying some legal and technical aspects of legislation passed hurriedly last year, but in the process seems to make it even more complex.
“We understand more draft legislation is in the pipeline and there will also be a very limited opportunity, if any, to analyse it.”
