The transition to retirement income stream (TRIS) measure is a SMSF mechanism that allows members to have access to their superannuation benefits prior to retirement once they reach their preservation age.
Prior to 30 June 2017, the benefits of a TRIS were two-fold:
- Members could access benefits within a restricted minimum and maximum percentage band (4% and 10% respectively) based on their pension balance(s) each year
- Earnings generated from the TRIS account were treated as tax exempt income and therefore zero tax is applied to the earnings
On 1 July 2017, a significant change occurred to TRISs in that the tax exemption on earnings from TRISs was removed. The change will apply to all TRISs regardless of what date they commenced.
The new law passed states that a TRIS will ALWAYS remain as a TRIS even if the member satisfies a full condition of release, unless the member notifies the trustees of the fund that they have met a full condition of release and converts the pension to an Account Based Pension (ABP).
However, the new regime post 30 June 2017 allows a TRIS to enter “retirement phase” and gain access to the pension exemption where a member:
- Notifies the trustee of them having met the condition of release of ‘retirement’
- Notifies the trustee of them having met the condition of release ‘permanent incapacity’ and notifies the trustee
- Notifies the trustee of them having met the condition of release ‘terminal medical condition’ and notifies the trustee
- Attains age 65 (does not have to notify the trustee)
Therefore, if a member in receipt of a TRIS meets one of the above condition of releases, the TRIS will be deemed to be in “retirement phase” and therefore gains access to the pension exemption. The pension will be counted towards the members $1.6m personal transfer balance cap. Conversely, a TRIS that does not meet a condition of release will not be deemed to be in retirement phase and therefore not receive access to the pension exemption, nor count towards the $1.6m transfer balance cap.
A TRIS that is in retirement phase will then have the option to convert to an ABP. This will allow the member to have no restriction on the maximum pension that can be withdrawn as the pension has been converted from a TRIS to an ABP. In effect, when a condition of release is met, a TRIS and a ABP will be treated the same EXCEPT that the TRIS will have a maximum pension withdrawal limit.
It is recommended that any TRIS that is exempt from tax be converted to an ABP to remove any confusion around:
- Whether a maximum pension withdrawal limit should apply (if categorised as a TRIS)
- Separating which TRIS pensions are exempt or non-exempt from tax (does the 15% tax rate apply)
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