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ATO issues ruling on transition to retirement income

The tax office has recently issued a private binding ruling addressing whether a specific strategy could be used for clients aged between 55 and 59 who are in receipt of transition to retirement income streams (TRIS).

News Miranda Brownlee 30 December 2015
— 1 minute read

According to Stuart Forsyth, director of McPherson Super Consulting, the strategy “involves clients satisfying their minimum payment obligations with a payment that is taxed as a lump sum, even though they have no unrestricted benefits to take as a partial commutation”.

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Speaking to AccountantsDaily's sister publication SMSF Adviser, Mr Forsyth said prior to receiving the private binding ruling from the ATO, it was understood the trustee had to do a partial commutation, which can only be done with unrestricted amounts.

This was due to a taxation determination that indicated if a partial commutation was done, it was then acceptable, he said.

“It never actually said you couldn’t do this, it just said what you clearly could do,” said Mr Forsyth.

Mr Forsyth said that following this information from the ATO, the strategy could potentially be available to many people within this age group, whether they have an SMSF or are a member of an APRA-regulated fund.

“We think that SMSFs will probably be the earlier adopters of it,” he said.

While some SMSFs may have already used the strategy, the SMSF trustee using the strategy now has more solid evidence it will be allowed by the ATO, according to Mr Forsyth.

Some essential steps, however, need to be followed, including documenting the commencement of TRIS with the client’s accumulation benefits if they are not already in the pension phase.

It is also important to identify the minimum and maximum payment limits for the TRIS in the current financial year.

The strategy could ensure the client will not have to pay tax on the first $195,000 of their pension drawdown between 55 and 59, Mr Forsyth said.

“It’s essentially a better tax outcome – they’ll be in the same position as if they’d retired on their 55th birthday,” he said.

ATO issues ruling on transition to retirement income
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