Commencing and then commuting a transition-to-retirement income stream on multiple occasions during one financial year will attract ATO scrutiny and may be classified as illegal early access of super entitlements, according to a superannuation technical specialist.
Responding to a question posed during a recent FirstTech podcast, Colonial First State head of technical Craig Day strongly advised against using the strategy, particularly as the regulator has recently consolidated its position on when an income stream commences and ceases.
“I can’t stress this enough, I really am uncomfortable with this particular strategy. I think anyone starting and stopping a transition-to-retirement (TTR) pension and taking multiple 10 per cent payments is absolutely exposing themselves to the risk of accusations of early access,” Day noted.
“In that situation, you’ve got multiple transactions and I think the ATO’s [argument] would be on very solid ground looking at Taxation Ruling 2013/5, which is when pensions start and cease.
“The ATO very much talk about the whole idea that an income stream is a sequence of payments that all relate to each other and if you’re just intending to take one payment and not multiple payments, then you’re potentially in a lot of hot water there.
“So I would strongly recommend against implementing that sort of strategy. I think for me it’s purely early release.”
Colonial First State senior technical manager Tim Sanderson concurred with the view and reiterated the approach is extremely risky from a compliance perspective.
“The maximum payment is not prorated in the legislation, but implementing a strategy of fully commuting and restarting a TTR pension during a year to allow multiple maximum payments, we really think is not in the spirit of the super rules,” Sanderson noted.
“One risk would include whether one or both of those pensions would even be considered a super pension. For example, if one was commenced, maximum payment taken and then commuted shortly afterwards, is that really a pension?
“We’re also aware that super funds may well monitor these sorts of situations and potentially take action if they do see multiple max payments being taken during a financial year.”
