SMSF members using a transition-to-retirement income stream (TRIS) that fails to make the minimum annual payment will breach updated rules on the treatment of pensions as will those who pay over the amount allowed for this type of product.
Smarter SMSF head of education Tim Miller said changes introduced to Taxation Ruling (TR) 2013/5 stated a TRIS that did not meet its minimum payments would cease for income tax purposes, but fund members should also be careful in regards to paying over the limit of 10 per cent of the pension’s account balance.
“If we fail to pay a minimum for a TRIS, it is a problem, but equally as important is if we pay more than the maximum because it’s not just about losing exempt current pension income anymore,” Miller said during a recent briefing hosted by SuperGuardian.
“Now it becomes about the payment standards because we have accessed preserved benefits and breaching those standards raises the question of is that money going to be taxed at our marginal tax rate.”
He noted there were a range of other compliance issues as well and an SMSF in this situation could be made non-complying and the trustees penalised, while the TRIS ceases for income tax purposes at the start of the income year and the payments are regarded as early access lump sums.
“With these compliance issues, will the commissioner apply their discretion to treat these payments as withdrawals?” he said.
“We know the ATO had previously released some material on this under the guise of a tax determination and a practice statement law administration, which stated in practice how the ATO would treat it internally in regards to discretion for the payment of pensions and illegal early release of money.
“The issue with these documents is they were withdrawn from the market and the ATO said ‘we’ll get back round to it’, but they have had other priorities and perhaps one of those priorities was the completion of TR 2013/5.
“It may be that we’re going to see some activity with regards to these documents because it’s important that we understand if somebody does the wrong thing, what is that actually going to mean for clients moving forward.”
