The government has announced how it intends to move forward with the transition to retirement income stream (TRIS) scheme, and those who currently have arrangements in place are set to be impacted.
The government announced last night that it plans to remove the tax exempt status of earnings supporting the TRIS.
More broadly, individuals will no longer be allowed to treat certain superannuation income stream payments as lump sums for tax purposes, according to budget papers.
“TRIS were designed to assist Australians to access limited superannuation savings to gradually move to retirement,” the government said.
“These changes ensure that TRIS remain fit for purpose, are not accessed primarily for their tax advantage, and still meet the objective of supporting people who want to remain in the workforce,” the government said.
The SMSF Academy’s managing director Aaron Dunn noted that while the change is significant, with no grandfathering, the government has been concerned about the abuse of the transition to retirement strategy for some time.
“In reality, the outcomes of the strategy have been dramatically extended beyond its original policy intent,” he said.
PwC’s director of private clients, Liz Westover, expressed similar views.
“It seems like it’s going to apply for all TRISs that are in place from 1 July 2017, it doesn’t sound like there’s going to be any transitional or grandfathering agreements for existing TRISs,” she told SMSF Adviser.
“I was surprised, because generally you find that existing arrangements are grandfathered, but it does bring it back to meeting the original policy objective, and from that perspective, this seems a logical approach,” Ms Westover said.
Many in the superannuation industry expected a complete ban on TRIS, making this measure less drastic than originally thought. However, Ms Westover acknowledged that the strategy will become significantly less appealing to taxpayers now.
“They’re not going to be used as a tax planning tool in the way they have been; this takes it back to the original policy intent – to enable people to supplement their income if they need to,” Ms Westover said.
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