Major questions linger for reversionary TRIS issues

The Senate made minor amendments to the bill which were mostly additions to the list of deductible gift receipts under schedule 10, which the House of Representatives has not yet passed.

Once the bill is finally passed, it will resolve an unintended consequence that evolved from the super reforms.

Under the current law, if the recipient of a reversionary TRIS dies, the TRIS can only revert to a dependent beneficiary if the beneficiary satisfies one of the relevant conditions of release, the explanatory memorandum (EM) materials explained.

“This outcome arises because of the interaction between the specific ‘retirement phase’ definition that applies to TRISs and the requirement in regulation 6.21 of the SIS Regs that death benefits can only be paid through a superannuation income stream that is in the retirement phase,” the EM stated.

In some cases, this has the potential to cause adverse estate planning outcomes and even breaches where the beneficiary hasn’t met one of the conditions of release. The SMSF industry consequently lobbied extensively on the issue.

Speaking to SMSF Adviser, SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley said that while the legislative fix for the issue is certainly very welcome, it’s very unclear what will happen for those that have already been affected by this technical issue.

“The legislation is a great thing because it sorts out the technical problem with reversionary transition to retirement income streams, but backdating it may [be difficult], as some people may have already been paid out their benefit,” he said.

“What do we do with those that have missed out merely because they didn’t meet the rules at the time, but now because of the way these new rules work should have been included under those rules?”

Mr Colley said that there may be some kind of administrative change implemented, such as a leeway period which would allow people to put their money back into the fund, because they may have taken it out as a lump sum or they may have been impacted by the transfer balance cap simply because they started a death benefit pension rather than a reversionary TRIS.

“If you’ve been caught out by the transfer balance cap and you’ve commuted that TRIS and you’ve then started a death benefit pension and that was then caught by the transfer balance cap, how is that going to be resolved,” he questioned.

“Is that going to be adjusted or measured at a different time now compared to the way in which it had been applied in the rules up until the legislation took effect? It’s an interesting one.”