Hidden jewel in superannuation tax reform package | KPMG | GLOBAL

Hidden jewel in released superannuation tax reform package

Hidden jewel in superannuation tax reform package

Ross Stephens highlights the Government's proposed superannuation reforms impacting transition retirement income streams.

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On 13 April 2017, the Government released for public consultation an Exposure Draft and explanatory materials for what it called “minor and technical amendments to the 2016 superannuation reform package”. Within the proposed changes is a crucial measure that will assist significantly in implementing the measures relating to Transition to Retirement Income Streams (TRISs).

The Government’s 2016 reform package provided that TRISs would no longer be eligible for the 0 percent tax rate on earnings. This change applied to all TRISs, including those where the member had since met a ‘nil condition of release’ (generally by attaining age 65 or fully retiring from the workforce).

This had the potential to create significant difficulties:

  • Many funds cannot identify which current pensions were originally commenced in the form of a TRIS without extensive work such as extracting the original application forms from the member.
  • Members that have met a nil condition of release, and that wish to continue to access the 0 percent tax rate on earnings, may need to commute the TRIS and commence a new income stream, which could have significant Centrelink and broader implications.
  • The need to cease and recommence a TRIS to access the 0 percent earning rate could significantly distort funds’ analysis of whether or not to apply the CGT uplift relief that is available on transition of a TRIS to the 15 percent rate.
    The Exposure Draft includes provisions that will ensure that the 0 percent tax rate on earnings will continue to apply to all TRISs where the member has since met a nil condition for release.

The Government is to be commended for listening to the industry’s concerns on this issue.

Unsegregated funds should take the opportunity arising from this greater certainty about the extent of the TRISs losing entitlement to the 0 percent rate, to now prioritise their analysis as to whether or not to apply the CGT uplift relief.

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