An SMSF technical expert has reminded practitioners of the role a transition-to-retirement income stream (TRIS) can play in the management of potential tax liabilities under the Division 296 legislation.
With this in mind, Smarter SMSF technical and education manager Tim Miller noted a TRIS can be very beneficial in a two-member fund where there is a significant disparity between the balances of the individuals involved.
“What’s really important in the next 12 to 15 months, in the pre-assessment period of Division 296, is that we’re looking at our clients who are at preservation age, and not retired, with large balances where potentially you’ve got one spouse with a large balance and one spouse with a lower balance,” Miller told attendees of a SuperGuardian technical webinar hosted recently.
“[In these situations we have to] look whether or not a TRIS might be beneficial.”
He pointed out the use of a TRIS in these circumstances can actually yield an advantage on two fronts for the member involved.
To illustrate this point he used the example of a two-member fund where currently the husband, Geoff, is age 62 and has a total super balance of $2.5 million and his wife, Jill, is 65 and has $420,000 worth of retirement savings benefits.
In order for Geoff to remain well below the $3 million Division 296 tax threshold, Miller suggested he should commence a TRIS on 1 July 2026 for $2.5 million and allocate the maximum drawdown amount of $250,000, or 10 per cent, to Jill under the non-concessional contribution (NCC) bring-forward rules.
Further, he said Geoff should withdraw the maximum amount again in the 2027 income year of $225,000 and contribute $110,000 for Jill, which is the remainder of the amount allowed under her NCC bring-forward period.
After these two transactions, he highlighted the fact Geoff will have a total super balance of $2.025 million and Jill one of $780,000 as at 30 June 2027, both significantly under the Division 296 threshold.
In addition, he indicated there was a second bonus for Geoff as he will be able take advantage of the full transfer balance cap to commence an account-based pension when he satisfies a full condition of release as his total super balance will be below $2.1 million.
“This is the beauty of our 60 to 65 year olds, particular those [clients] with near enough to or over $3 million,” he said.
“They’ve got the capacity to draw a significant amount [of money] out [of the SMSF] and potentially rebalance with their spouse. So they might get caught up with Div 296 for a year or so, but then they can actually incorporate strategies to move money from one [member] to the other pre-death.”
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
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