The ATO provided some information on issues that you, as a trustee or self – managed super fund (SMSF), need to consider when commencing a transition to retirement income stream (TRIS), running a TRIS and ceasing a TRIS.
When a trustee commences a TRIS they need to know the following;
1. Preparing to offer a TRIS
It is not compulsory for your SMSF to offer members a TRIS, although your SMSF may pay a TRIS if the fund’s trust deed allows this type of pension to be paid.
Before starting to pay any pension, we recommend that you seek the advice of a professional such as JHK Accounting Services.
2. Features of a TRIS
A TRIS must satisfy the following standards in the SIS Regulations: It must be an account-based pension. This means there must be a payment from the pension at least once each year an account balance must be attributable to the recipient of the pension each year, a specified minimum amount must be paid to the recipient (see Paying the minimum annual pension payment amount). The capital value of the pension and the income from it cannot be used as a security for a borrowing. The pension can only be transferred to another person on the death of the recipient. The total payments made in a year must not exceed 10% of the account balance on the commencement of a TRIS for the year it starts or on 1 July for each subsequent year. It must meet the restrictions on the commutation of the pension.
3. Setting up a TRIS
When a member asks to commence a TRIS you should first establish the amount of benefits they have in the SMSF. To do this, refer to the valuation guidelines for SMSFs to help you establish the value of all the fund’s assets and liabilities and each member’s share of the net value of the fund.
When a trustee is running a TRIS they need to include the following;
- Record keeping
- Paying the minimum annual pension payment amount
- Priority of cashing benefits
- The tax implications for the fund when paying a TRIS
- Satisfying a condition of release while paying a TRIS
- Restrictions on withdrawals from a TRIS
- Understanding the maximum annual pension payment limit of a TRIS
- Failing to meet the standards in the SIS Regulations
- The trustee has not been paying an income stream at any time during the year.
- The super income stream (that is, the TRIS) ceases for income tax purposes.
- Full commutation of a TRIS
- What happens when the pensioner in receipt of a TRIS dies
A TRIS ceases as soon as a member in receipt of the pension dies, unless a dependant beneficiary is automatically entitled, under the SMSF‘s trust deed or the rules of the pension, to receive the pension upon the member’s death and is a person who may be paid the member’s benefits in the form of a pension, for example, the member’s spouse. Such a pension is called an auto-reversionary pension. This means that when a TRIS is an auto-reversionary pension, on the death of the member in receipt of the pension.
The transition to retirement measure allows people who have reached their preservation age to have access to their superannuation benefits without having to retire or leave their job. This measure allows people to access their super savings in the form of a specific kind of pension or income stream called a TRIS. Essentially, a TRIS is an account-based pension from which lump sum payments can only be made in limited circumstances.
Before you start paying a TRIS to a member, the member must have reached their preservation age (that is, the minimum age that a member can access their preserved super benefits without satisfying another condition of release). For those born before 1 July 1960, the preservation age is 55. The preservation age of those born on or after 1 July 1960 is higher.
If you have any queries on a Transition to retirement income stream (TRIS) and how it affects your specific situation concerning superannuation don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
