Aware Super Logo

Home

Transition to retirement

What are the tax advantages of a TRIS?

Section: 13.3

The tax treatment for payments from a TRIS in the hands of the member has not changed. Member's who are 60 years old or older and receiving a TRIS, their payments from that TRIS will generally continue to be tax-free.

However, since 1 July 2017 the ability of member's to make an election to treat TRIS payments as superannuation lump sums for tax purposes has been removed. This means superannuation member's will no longer have access to the super lump sum low rate cap for payments from their income stream. Therefore, the amount of tax a member must pay on their super income stream may change.

How the election works

Prior to 1 July 2017, regulation 995-1.03(b) of the Income Tax Regulations 1997 allows member's to elect to treat one or more payments from their super income stream as a super lump sum for tax purpose. Generally, this option was used to take advantage of tax concessions available when between their perseveration age and 60 years old.

If the member made this election, it changes the tax treatment of the payments because they member could access the low rate cap (currently $215,000).  Super lumps up to this cap are tax-free. The cap applies to reduce the amount of tax a member pays on the taxed component of their benefit through a super lump sum tax offset.

Effective 1 July 2017, the removal of this election means a member can no longer treat pension payments as lump sums for tax purposes. Instead, they will be taxed as income stream benefits. Under the PAYG rules, the fund may need to withhold more tax from their payments.

Example: 

Jodi is 57 years old in 2016-17. In addition to her income from employment ($40,000 per year), she commences a TRIS from her self-managed super fund (SMSF) part-way through the financial year. Jodi receives three payments of $12,000. She has received no previous super lump sums and the full $195,000 low rate cap is available to her.

Jodi receives benefits totalling $36,000 in 2016-17, with tax-free components of $3,600, and taxable components (taxed in the fund) of $32,400.

Before she receives each payment, Jodi elects to treat her TRIS benefits as super lump sums for tax purposes.

In her 2016-17 tax return, Jodi:

  • does not includes the tax-free component of $3,600, as it is non-assessable non-exempt income
  • includes the taxable component of $32,400 as assessable income.
  • receives a super lump sum tax offset - which means that the rate of income tax on the lump sums is nil because the taxable component ($32,400) does not exceed her unused low rate cap.

Jodi continues to receive quarterly TRIS benefits in 2017-18, totalling $48,000. She is no longer able to make the elections to treat the TRIS benefits as super lump sums.

In her 2017-18 tax return, Jodi:

  • does not include the tax-free component of $4,800, as it is non-assessable non-exempt income
  • includes the taxable component of $43,200 as assessable income
  • is taxed at her marginal tax rate
  • receives a tax offset of 15%.

Source: GN 2017/14- Removal of election to treat super income streams as lump sums

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Wednesday, September 30, 2020