A technical specialist has reminded advisers of the need to satisfy certain minimum requirements before any of their SMSF clients look to commence a transition-to-retirement income stream (TRIS).
Accurium principal Melanie Dunn noted three items in particular advisers and their SMSF clients need to consider before they start a TRIS, being the trust deed, specific documentation and certain tax protocols.
“We need to check the SMSF trust deed permits a member to commence a TRIS. With newer deeds there may not be a problem here, but it is worth noting that the enabling legislation allowing TRIS commenced on 1 July 2005,” Dunn told attendees of a recent technical webinar she hosted.
“So if we have older deeds, they might not permit it and we might have to review those.”
She stipulated a TRIS is still a pension and even though it is not necessarily for members in drawdown phase, it does not exempt them from the required documentation related to an income stream.
“[So] we need to set the terms of the pension around the reversionary status of the income stream, we need to calculate the tax-free and taxable components just like we would for any other income stream, such as an account-based pension, and lock them in,” she said.
Further, she pointed out the SMSF may have to take some additional measures with regard to its tax status.
“We also need to think about whether the SMSF will need to register for PAYG (pay-as-you-go) withholding [tax]. This is required if the TRIS members are under age 60 and they’ve got a taxable component [in their superannuation balance] because benefits [related to members] under age 60 [means they] might have to pay tax on that taxable component,” she noted.
She took the opportunity to also stress the SMSF member must have attained preservation age to be eligible to commence a TRIS.
