Technical expert identifies traps with TRIS conversion

Speaking at an event in Sydney, Mr Day said there are practical issues with ensuring that a client has satisfied a legitimate condition of release.

He said the ATO has flagged concerns in relation to clients with TTR income streams attempting to satisfy a condition of release in whatever way possible in order to transfer a pool of assets into tax- free assets when it converts into a normal account-based pension.

“People will be incentivised to do that, so from your perspective, you need to make sure that clients satisfy a legitimate condition of release,” Mr Day warned.

At or after age 60, the condition of release for retirement is simply ceasing an arrangement of employment after turning 60.

“You might think that’s pretty simple – the client had a job and now they don’t have a job,” Mr Day said.

“But what if you’ve got clients who are contractors, what if you’ve got clients that have two jobs or multiple jobs, what if you’ve got clients who have a contact for one day, what if you’ve got a client who is running an investment consultancy business through a trust structure which they aren’t actually employed by themselves but they receive distributions or dividends? Are they employed? Have they ceased an employment arrangement by putting that arrangement into place?

“These are the kinds of fun and games that are going to be squarely in the spotlight of the ATO.”

Mr Day said this is already evident from the guidance on the ATO’s website where it gives an example of someone who has a business run through a trust structure, and they cease employment after turning 60, triggering a condition of release, but they continue to be part of the profit-making activities of that company, and they just take distributions or dividends.

“What the government and ATO says is that if they see a link between the dividends or distributions and the activities [of the trust], then they won’t have satisfied a condition of release and they’ll treat that as Part IVA for all intents and purpose,” Mr Day said.

“There will also be some clients who have legitimately met a condition of release, but they just don’t realise it because they’ve just gone from one employer to another. So it’s making sure you have those conversations.”