An SMSF specialist has warned the updated version of Tax Ruling (TR) 2013/5 will significantly impact transition-to-retirement income streams (TRIS) should trustees breach their minimum and maximum payment obligations associated with these types of pensions.
Accurium head of SMSF education Mark Ellem cautioned advisers not to think the effect of the updated TR 2013/5 Income tax: when an income stream commences and ceases, released in June, will be confined to retirement-phase pensions.
“I’m thinking about [situations where trustees] breach the TRIS payment standards, that is, where they pay less than 4 per cent or they pay more than 10 per cent [of the TRIS’s value]. All these payments [will then have to be treated as lump sums],” Ellem told delegates at the Accurium SMSF Compliance Day 2024 held in Sydney yesterday.
“What type of benefits [support] a TRIS? Unrestricted, non-preserved? No, preserved. What can’t you take from a TRIS? Lump sums. So [in not adhering to the minimum and maximum TRIS payment requirements], they’ve breached the payment standards.”
He pointed out the breach will be irreparable for the TRIS in question as well.
“How are these payments treated for tax purposes? [They are] 100 per cent assessable. So again [under the] old approach [you’d be thinking] I breached the 4 per cent or 10 per cent [payment obligations], I fixed it in the next [financial] year, so the [incorrect payments will only be assessable] for that one year. No. [That treatment] will keep going until you consciously cease [the existing TRIS and start a new one] if you so wish to,” he said.
“Obviously if you cease [the pension], you’ll have stop [making drawdowns] because you’re taking preserved benefits out of a TRIS.”
According to Ellem, the consequences of the updated TR 2013/5 for legacy pensions is still unknown.
“We’re not working through that at the moment and it’s scary,” he said.
