Tips and traps flagged for TRISs with TBC indexation

While Mr Dunn said there is some risk the government could look to freeze indexation through a legislative amendment, under the current law indexation is set to occur on 1 July.

Where an individual has previously used their entire transfer balance cap, they won’t receive any benefit from the uplift in the general TBC value, he reminded SMSF professionals.

“Even where they may have used some commutation strategies where they were taking lump sums out, particularly in this reduced minimum pension environment, the fact that at one point in time they had used 100 per cent of their balance means they get no benefit from indexation,” he explained.

“At the particular point in time when the indexation occurs, we're looking for the smallest available cap space that a person has at any point in time, since that transfer balance account was established for that individual.”

For some clients, Mr Dunn noted it may be better deferring the commencement of retirement phase income streams in order for them to benefit from the maximum increase in their personal cap.

However, there may be circumstances where the timing of a transfer balance cap credit event cannot be controlled such as with reversionary pensions and the auto-conversion of transition to retirement income stream when a member turns age 65.

“We may have someone that is drawing a transition to retirement income stream and by virtue of them turning age 65, that in itself becomes an auto credit event for transfer balance cap purposes.”

“Therefore we need to ensure that the credit happens at the point at which the member turns 65 which means we may not get to pick up the benefit [of indexation].”

For other clients with TRISs that won’t be turning 65 before 1 July, Mr Dunn said it may be possible to defer the transfer balance cap till after 1 July.

“Remember with TRISs, the member might be looking to retire now and apply the retirement condition but the credit doesn’t apply until there’s notice that’s been served.”

“So, you could potentially delay that notice to serve on the trustees and defer the credit itself because its only turning age 65 where the auto credit event actually applies.”

Mr Dunn said there is a lot that SMSF professionals need to start thinking about what clients are going to be impacted by the increase in the general transfer balance cap.

“You need to be thinking about what clients are planning to make contributions, what clients are looking to start pensions, what clients are going to have credits applied within the next six months and what impact that has with their transition to retirement income streams and the notice of when they may be retiring.