Aaron Dunn, CEO of Smarter SMSF, said in the company’s latest YouTube update that many strategies can be “wrapped around” the transition to retirement income stream (TRIS) that can have tax and estate planning advantages.
Tim Miller, head of education for Smarter SMSF, said TRIS lost some of its popularity in 2017 when it lost its exempt current pension income (ECPI) deduction link.
“There was a slight offset to that, which was that TRIS wasn’t counted towards an individual’s transfer balance cap if you commenced it. The Tax Office, in line with Treasury, created a lot of confusion around the same time by creating concepts such as a transition to retirement income stream and then a transition to retirement in retirement, which, of course, is a counterintuitive kind of concept,” he said.
“However, what we’ve seen now is with the evolution of preservation age hitting 60 and that old super system where anyone over the age of 60 who receives income receives it as non-assessable, non-exempt income, it is now marrying together the ability to access your money from age 60 along with that income then being tax-exempt.”
He added that although there is still the issue of no ECPI deduction for the fund, for the individual, it is a more palatable outcome as they are ultimately receiving income, albeit funded by themselves or from their superannuation, in a non-tax environment.
“The decline in the contribution caps over that period as well sounded the death knell for transition to retirement, but I think there are two levers that have happened in more recent times that enable transition to retirement to be an effective strategy from an income tax perspective,” Dunn said.
“One of those levers is the fact that from 1 July 2024, the preservation age is 60, which is non-assessable. Couple that with the stage-three tax cuts and that puts a little bit more money in the pocket of the individual.”
He added that the other opportunity is that there is an unused cap of concessional contributions that is also available, which then allows people to contemplate this strategy and, therefore, get the tax advantage of combining those things.
Miller said there are clients where a transition to retirement is actually used for its intended purpose to supplement their income on their way through to retirement, but there is also now an additional new client base of those that can either make large, non-concessional contributions, or who are eligible for the downsizer contribution.
“With downsizer coming back to 55 years, it means that it fits in with the preservation age-style contribution, where we can actually look now from age 60, and from a strategic point of view, to segregate tax-free and taxable monies by starting separate income streams,” he said.
“There is the capacity potentially for someone with a large taxable component in their fund to commence a TRIS and then shortly afterwards, make non-concessional contributions, or make a downsizer contribution and lock that away in an income stream, and then potentially even unwind the taxable one.”
