The measure – The Government will remove the tax exempt status of income from assets supporting TRIS. These earnings will now be taxed concessionally at 15 per cent.
Individuals will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.
[Treasury website – Super Changes]
The issue – Transition to retirement income streams were introduced in 2005 to provide limited access to superannuation for people wanting to move towards retirement by reducing their working hours and using their superannuation to supplement their income.
- People can commence a transition to retirement income stream between preservation age (currently 55 and later for some) and age 65.
- Individuals in receipt of transition to retirement income streams enjoy tax-free earnings on their superannuation assets.
- Recipients are also able to reduce their tax liability by salary sacrificing their income (that would otherwise be taxed at their marginal tax rate) into superannuation and instead taking a superannuation income stream at a concessional tax rate.
The Productivity Commission has recently found that transition to retirement income streams have increasingly been used by people for tax minimisation purposes without any reduction in work hours.
The detail – To ensure access to transition to retirement income streams is primarily for the purpose of substituting work income rather than tax minimisation:,
- the tax exempt status of income from assets supporting transition to retirement income streams will be removed from 1 July 2017. Earnings from assets supporting transition to retirement income streams will now be taxed concessionally at 15 per cent. This change will apply irrespective of when the transition to retirement income stream commenced.
- Reducing the tax concessional nature of transition to retirement income streams will ensure they are fit for purpose and not primarily accessed for tax minimisation purposes.
- Further, individuals will no longer be able to treat certain superannuation income stream payments as lump sums for tax purposes, which currently makes them tax-free up to the low rate cap ($195,000).
[Treasury Factsheet]