ATO updates guidance on conversion of TRISs
The ATO has released updated guidance on transition to retirement income streams which provides further clarification on whether a TRIS can be converted into another form of income stream once in retirement phase, says an industry law firm.
The ATO has updated Guidance Note 2019/1 to further clarify the status of TRISs post-1 July 2017.
GN 2019/1 states that a TRIS does not convert into any other form of superannuation income stream when it moves into the retirement phase.
“It will continue to satisfy the definition of a TRIS, and will only be converted to another kind of superannuation income stream if it is ceased and a new superannuation income stream is commenced,” the guidance note states.
“The regulatory restrictions particular to a TRIS, [including] the 10 per cent maximum annual payment and commutation restrictions, fall away automatically once the member meets one of the conditions of release.”
This is subject to the governing rules of the fund or agreement or standards under which the TRIS is provided.
“Once those limitations are gone, the TRIS has the same restrictions and requirements as an account-based superannuation income stream,” the ATO said.
DBA Lawyers senior associate William Fettes said the updated guidance makes it clear that the income stream will continue to satisfy the definition of a TRIS upon moving into retirement phase, and would only be converted if it was ceased and a new income stream commenced.
“I’m not sure that there is a strong basis in the law for asserting that an income stream commenced as a TRIS cannot satisfy the definition of an account-based pension under regulation 1.06 (9A) at a particular point in the future,” Mr Fettes said.
Mr Fettes said some of the thinking around what an income stream is under the SIS Regulations is somewhat muddled because it’s often applied from the perspective of the large APRA-regulated super funds.
“There’s a sense that an income stream is like a product and not a changeable product. I don’t think you’ll find anything in the regulations which says you’re trapped in a TRIS and that it’s a straitjacket that you wear for your lifetime on the commencement of a TRIS and it can never be anything else,” Mr Fettes said.
“[However], this is the ATO’s position, so we need to adhere to that because we need to swim between the flags.”
Mr Fettes said that following the enactment of 307-80(3)(aa) of the ITAA 1997 via Treasury Laws Amendment (2018 Measures No. 4) Act 2019 (Cth), which rectified an issue with reversionary death benefit issue with TRISs, a retirement phase TRIS is now broadly identical to an account-based pension anyway.
The new provisions mean that a reversionary death benefit TRIS is always in retirement phase and there is no real difference of substance that remains between ABPs and exempt TRISs.
“So, now that we have a fix in place, we don’t have any real issue to be concerned about with a retirement phase TRIS.”
GN 2019/1 states that when a TRIS is reversionary, it does not cease when the member dies.
“It continues to be paid and the entitlement to the payments transfers to the reversionary beneficiary. The TRIS will be in retirement phase once it starts to be paid to the reversionary beneficiary, irrespective of whether the reversionary beneficiary has personally met a condition of release,” the guidance states.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
