Earlier this year, the government made amendments to TRISs, extending the zero tax treatment of an account-based pension to a TRIS where the member has satisfied a condition of release.
Speaking in a webinar, DBA Lawyers director Daniel Butler said these amendments have created uncertainty around whether a TRIS that was in retirement phase and under $1.6 million on 30 June would still be able to receive the relief.
“The ATO seems to be comfortable that a TRIS would get the CGT relief even if below the $1.6 million. However, I question whether it would be different for a TRIS in retirement phase,” said Mr Butler.
“If the member had satisfied a condition of release, would the ATO still be comfortable on that TRIS member getting CGT relief?”
Due to the change that was made by the government, this is no longer entirely clear, he explained, because the amendment positioned a TRIS in retirement phase “on a similar but different footing to an account-based pension”.
The ATO has made it clear that a member with an account-based pension of just $1.5 million would not be entitled to the relief, because it does not satisfy the object provision of the Income Tax (Transitional Provisions) Act 1997 – Sect 294.100.
The object of the subdivision, the act states, is to “provide temporary relief from certain capital gains that might arise as a result of individuals complying with the following legislative changes:
(a) The introduction of a transfer balance cap (as a result of Schedule 1 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016);
(b) The exclusion of transition to retirement income streams (and similar income streams) from being superannuation income streams in the retirement phase (as a result of Schedule 8 to that act).”
“So if a TRIS was in retirement phase, it really doesn’t fit squarely into that provision,” said Mr Butler.
The ATO, he explained, has not yet finalised the law companion guideline on this. While the LCG was finalised in March this year, it was reopened following the amendments made by the government, with submissions closing on 27 October.
“So it’s still an open matter, so just watch out for that, watch out for a potential change that TRISs that are below $1.6 million that are in retirement phase may be denied CGT relief,” he warned.
The reason there is CGT relief for balances over $1.6M is that a portion is going from a previously tax free to a taxable environment. This is the same situation with the TRIS as it is no longer a retirement phase income stream. So regardless of the balance, the TRIS has been negatively affected by the legislation changes, as have balance over $1.6M, so should be entitled to some concessional relief as well.
You need to ask why you need CGT Relief for a retirement phase interest under $1.6m?