TRISs and Traps

From 1 July 2017, the tax exemption for transition to retirement income streams (TRIS) will end. That change was effected by the superannuation reforms which became law on 29 November 2016 (2017 Superannuation Reforms).

The change raises an issue about whether and how a TRIS can become a 'retirement phase' income stream when the pensioner satisfies the relevant condition of release. On 12 April 2017 the Federal Government released its exposure draft legislation, which proposes technical amendments (Draft Amendments) to resolve that issue.

The transition to retirement income streams (TRIS)

An individual who has reached preservation age can draw down on their superannuation interests before they retire from the workforce or turn 65.^[1] This can be done by the individual commencing one of the following (a TRIS):

• a transition to retirement income stream;
• a transition to retirement pension;
• a non-commutable allocated pension; or
• a non-commutable allocated annuity.

From 1 July 2017, TRISs will be excluded from the earnings tax exemptions (Tax Exemption) as they are expressly excluded from being considered a 'retirement phase' income stream.^[2]

'Once a TRIS, always a TRIS'? Ambiguity created by the 2017 Superannuation Reforms

The 2017 Superannuation Reforms^[3] created ambiguity about whether a TRIS could ever qualify as a 'retirement phase' income stream which is eligible for the Tax Exemption.

Advisers have since been fielding and posing a number of questions relevant to this issue:

1. Does my TRIS automatically convert into an account-based pension when the pensioner satisfies a condition of release with a nil cashing restriction?
2. Do I need to commute and replace my TRIS with a new (non-TRIS) superannuation income stream?
3. Once a pension is commenced as a TRIS, will it always be a TRIS?
4. Is there anything I can do to ensure my TRIS automatically converts to a retirement phase income stream?

Draft Amendments provide the answer

The good news is that the Draft Amendments^[4] provide an answer to all these questions: a TRIS will become a retirement phase income stream when the member satisfies the nil condition of release.

Does the Cleardocs TRIS automatically convert to an account-based pension?

This question is somewhat academic as all transition to retirement pensions — assuming they are compliant and reflect the requirements of superannuation law — will automatically convert to a retirement phase income stream.

In response to the ambiguities created by the current legislation, the Cleardocs Pension Pack contains a provision which removes the TRIS provisions from the document when the member satisfied a 'nil' cashing restriction.

However given the clarity provided by the Draft Amendments, the Cleardocs Pension Pack product — with or without the new provision — will provide for automatic conversion to an account-based pension once the Draft Amendments become law.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Revenue Practice Group.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of matters.

Also, you can see Guides by Maddocks dealing with:

• Superannuation reforms
• Over 55? Is a transition to retirement pension the right strategy?
• Tax free TRIS? — ATO delivers a private ruling on tax treatment of transition to retirement income streaming

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