The removal of the ability to treat superannuation income stream benefits as lump sums for tax purposes may commence as early as 1 January 2017.
In September 2016, Exposure Draft1 regulations were released for consultation which would remove regulation 995-1.03, which provides for the member to make an election for income stream payments from eligible income streams (eg, account based pensions) to be taxed as superannuation lump sum benefits.
The final form of the regulation could be registered and effective as early as 1 January 2017.
It is not clear whether elections already made since the Budget announcement will be impacted. A client should seek a private binding ruling prior to implementing any strategy that contemplates an election to be made under reg 995-1.03.
Below is a timeline of developments concerning this controversial election:
July 20132: The ATO confirmed ‘Each periodic payment…is a superannuation income stream benefit unless an election under regulation 995-1.03…has been made for that payment not to be treated as a superannuation income stream benefit’
Dec 20133: The ATO released a Private Binding Ruling that confirmed the taxpayer in question could elect to have (transition to retirement) TTR pension payments taxed as lump sums.
Jan 20164: The SMSF news section of the ATO website was updated to acknowledge in some circumstances a member may elect to have pension payments treated as lump sums for tax purposes. The ATO highlighted further issues related to this strategy for SMSF trustees to consider.
Jan 2016: FirstTech article Taxing TTR payments as lump sums.
May 20165: Federal Budget announcement: ‘The Government will …remove a rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes.’
Sept 2016: Exposure draft regulations released to remove the ability to make an election under regulation 995-1.03.
1 Exposure Draft, Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016 and Exposure draft explanatory statement.
2 Australian Taxation Office, Tax Ruling 2013/5: Income tax: when a superannuation income stream commences and ceases, paragraph 7, 31 July 2013.
3 Australian Taxation Office, Private Binding Ruling 1012925066548, 8 December 2015.
4 Australian Taxation Office, SMSFs and transition to retirement pension payments, 11 January 2016.
5 Budget Measures 2016-17, Budget Paper No. 2, Superannuation Reform Package – strengthen integrity of income streams, p 30.
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It's also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.