The ATO has updated Guidance Note 2019/1 to further clarify the status of TRISs post-1 July 2017.
GN 2019/1 states that a TRIS does not convert into any other form of superannuation income stream when it moves into the retirement phase.
“It will continue to satisfy the definition of a TRIS, and will only be converted to another kind of superannuation income stream if it is ceased and a new superannuation income stream is commenced,” the guidance note states.
“The regulatory restrictions particular to a TRIS, [including] the 10 per cent maximum annual payment and commutation restrictions, fall away automatically once the member meets one of the conditions of release.”
This is subject to the governing rules of the fund or agreement or standards under which the TRIS is provided.
“Once those limitations are gone, the TRIS has the same restrictions and requirements as an account-based superannuation income stream,” the ATO said.
DBA Lawyers senior associate William Fettes said the updated guidance makes it clear that the income stream will continue to satisfy the definition of a TRIS upon moving into retirement phase, and would only be converted if it was ceased and a new income stream commenced.
“I’m not sure that there is a strong basis in the law for asserting that an income stream commenced as a TRIS cannot satisfy the definition of an account-based pension under regulation 1.06 (9A) at a particular point in the future,” Mr Fettes said.
Mr Fettes said some of the thinking around what an income stream is under the SIS Regulations is somewhat muddled because it’s often applied from the perspective of the large APRA-regulated super funds.
“There’s a sense that an income stream is like a product and not a changeable product. I don’t think you’ll find anything in the regulations which says you’re trapped in a TRIS and that it’s a straitjacket that you wear for your lifetime on the commencement of a TRIS and it can never be anything else,” Mr Fettes said.
“[However], this is the ATO’s position, so we need to adhere to that because we need to swim between the flags.”
Mr Fettes said that following the enactment of 307-80(3)(aa) of the ITAA 1997 via Treasury Laws Amendment (2018 Measures No. 4) Act 2019 (Cth), which rectified an issue with reversionary death benefit issue with TRISs, a retirement phase TRIS is now broadly identical to an account-based pension anyway.
The new provisions mean that a reversionary death benefit TRIS is always in retirement phase and there is no real difference of substance that remains between ABPs and exempt TRISs.
“So, now that we have a fix in place, we don’t have any real issue to be concerned about with a retirement phase TRIS.”
GN 2019/1 states that when a TRIS is reversionary, it does not cease when the member dies.
“It continues to be paid and the entitlement to the payments transfers to the reversionary beneficiary. The TRIS will be in retirement phase once it starts to be paid to the reversionary beneficiary, irrespective of whether the reversionary beneficiary has personally met a condition of release,” the guidance states.
The ATO has an interpretation of ‘once a TRIS, always a TRIS’. But there are no obvious disadvantages of staying as a TRIS Retirement Phase, so why start a new income stream if one doesn’t need to?
What I want to know is what does APRA require public offer funds to do? Can TRIS be auto-morphed into a ABP or does a new income stream need to start? Of course APRA hardly ever provide guidance on such matters but maybe they need to get on the front-foot and advise the industry of best practice.
Where a TRIS needs to be restarted for it to be an ABP, another issue is the recalculation of the minimums and Centrelink grandfathering issues (the latter point, being rare but not impossible).
The danger is not the terminology. The problem is the unsuspecting impact of the TBC suddenly which can have tax implications which we saw recently the ATO has no sympathy with. I think an effective way around that potential problem is to include in the establishment docs for the TRIS an instruction to automatically commute a TRIS as soon as a condition of release is encountered.
I think it depends on the establishment docs and deed. If these say that the TRIS converts to an account based pension upon meeting a condition of release, then logic says it will change without having to restart. If the establishment docs and deed are silent on the matter, then it is a bit more grey and the ATO would be right to apply their interpretation of the law. Kym is right though. They are ridiculously narrow thinking and stubborn. Remember the whole actuarial debacle anyone!
Confused to say the least. So you basically can’t convert a TRIS to a pensions that claims ECPI now?
It is pure stubbornness on the behalf of the ATO. They don’t write the law and on this occasion have erred on the interpretation but, the industry is bullied by the specter of the “big litigation wallet” so, the ATO gets to do, say, what suits them.
Even a superficial reading of the regs reveals there is not any ‘transition to retirement income stream’, there is however an account based pension that has cashing restrictions.
100% is is a pander to the institutional model that has to have labels for their products.
Totally agree Kym, ATO Govt just proving how out of touch with reality they are.
They let a TRIS become an ABP for 11 years, as the whole industry did before this stupid incorrect change of terminology to a meaningless TRIS Retirement Phase, which is just a BLOODY ABP.