Along with a raft of legislative change, the Australian Securities and Investments Commission (ASIC) has also introduced new licensing requirements for accountants who work with and advise Self Managed Superannuation Fund (SMSF) Trustees. Only approx. 10% of accountants have complied with these changes to date.
As such if you, as many, consider your accountant would be your 1st port of call for Financial Advice, they will likely advise you, they are unable to provide the information you require & should consult a qualified Financial Adviser / Planner.
This is general advice only and you should seek expert financial advice from a qualified financial adviser before acting on any of the information covered in these topics.
Are Transition to Retirement Income Streams (TRIS) still worthwhile ? Here are 4 Good Reasons why they might be.
The TRIS was originally introduced, as the name would suggest, to allow superannuants to transition to retirement. So for clients that were over the age of at least 55 (depending on your preservation age), that did not wish to work full time, a TRIS could be commenced. Payments from the TRIS could supplement income for superannuants who were now working part time.
However, they were also particularly attractive for high income earners, that did not require any TRIS payments, as the 15% earnings tax on super in the accumulation phase, did not apply to TRIS.
Amendments have been made to their tax treatment of TRIS, where the 15% earnings tax will still apply until the superannuant turns 65 (or under some circumstances after age 60).
At this point they are eligible to commence an Account Based Pension (ABP), where the 15% earnings tax on super ceases to apply.
However for superannuants, between the ages of 60 and under 65, TRIS may still be an attractive strategy.
Firstly for clients that are keen to boost their super balances, Superannuants can make concessional contributions CC (pre tax) up to their $27.5k cap to boost their superannuation balance. A TRIS payment of between 4% (4% preferable to help boost super) and 10% is then taken to help supplement take home pay. If this payment is not required, and your super balance is below the $1.7million Transfer Balance Cap (TBC), this can be recontributed to the superannuation fund as a Non Concessional Contribution (NCC) / post tax contribution. This is a highly tax effective Estate Planning Strategy, for your super funds that are being directed to non dependent beneficiaries (eg adult children) in the event of a superannuants death.
The tax treatment on earnings in the TRIS is exactly the same as the tax treatment on earnings in the accumulation phase of super. So under the above circumstances, it is certainly an attractive strategy to potentially provide a solid boost to superannuation balances over that 5 year period. This strategy can be continued after age 65, where it is even more attractive as the TRIS can convert to an ABP at this point, which has an even more favourable tax treatment
Secondly, for superannuants that still have non deductible debt (or deductible debt if it makes sense to reduce).
Between the ages of 60 < 65, clients may wish to take up to their 10% TRIS max tax free to reduce / eliminate debt.
Typically this will work best where the max $27.5k cc are being made by an individual or a couple, in combination with a tax free TRIS payment of say 10% to reduce debt. Again, this may be an attractive strategy, as the tax treatment on earnings for the TRIS is exactly the same as the treatment while in the accumulation phase, while home loan debt is being reduced / eliminated on.
Thirdly, superannuants may wish to take a TRIS payment to assist them in taking advantage of their full $27.5k CC or possibly a larger CC using the ‘catch up’ provisions in particular years. This most likely be the case where they don’t have the liquid cash available to implement such a strategy.
Fourthly, TRIS payments can be used to equalise the superannuation balances between spouses to target the $1.7million tax free Transfer Balance Caps (TBC) available. Where one spouse is above the TBC and the other below, the TRIS payment can be used, within contribution limits, to recontribute to the spouses superannuation account that is under the TBC.
Professional expert advice from a fully licensed financial adviser should be sought, prior to implementing any of these strategies.
“Difficult Roads often lead to beautiful destinations” – Marina Howard.