SMSF auditors should be aware of situations where a member may be using a transition-to-retirement income stream (TRIS) to gain access to their superannuation entitlements illegally, a senior adviser has warned.
“When you’re doing audits, watch out for members who commence a TRIS, having taken a 10 per cent [pension] payment and then commuted it back to accumulation phase,” Fitzpatricks Private Wealth head of strategic advice Colin Lewis said during a webinar presented by The Auditors Institute today.
“The problem here is their motivation is purely a tax-driven strategy [because] basically they need the money, or they could be doing it to manipulate their total super balance.
“If a member has done this, then they haven’t run an income stream. If they haven’t run an income stream, then they can’t have had a TRIS.
“If they’ve accessed their super benefits without satisfying a condition of release, and they haven’t had a TRIS, then they’ve actually accessed their super illegally [and] the tax office [is] concerned about that [behaviour].”
According to Lewis, the ATO made it clear this strategy was prohibited in Taxation Ruling 2013/5.
“The problem is that a pension that comprises one payment only is not an income stream. If you go back to the tax ruling in 2013, it says the feature of this strategy will not satisfy the liability to pay a member a series of payments and thus will not be a super income stream,” he said.
“What I’m talking about here is somebody who is deliberately starting an income stream, takes a payment and then stops that income stream.”
Additionally, he shared several examples from his practice of why a trustee might employ the use of this strategy outside of accessing their super money early.
“The [member] may be wanting to lower their total super balance [to make non-concessional contributions]. Or they’re wanting to use the bring-forward rule on those thresholds,” he said.
“They [may] want to access the unused concessional contribution cap now, which is based on a $500,000 total super balance of the previous 30 June.
“Or they want to use the segregated method to determine their exempt current pension income, where they’ve got disregarded small fund assets.
“The important thing is any person who’s commenced a TRIS must do it on a genuine intent of running an income stream, not to pull money out of super.”