Federal Budget / Pensions / SMSF / SMSF Compliance

The new concept of retirement phase

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One of the most important ‘shifts’ in legislative design with the super reforms has been the Government’s decision to limit the available tax concessions for those individuals drawing an income stream in post-retirement.  Whilst conceptually we understand the notion of ‘retirement phase’, it will now become an important definition within the tax laws to determine eligibility for a fund’s level of tax exemption.  This limitation of a fund’s exempt current pension income (ECPI) through the introduction of a $1.6 million transfer balance cap is just one piece of the new measures that incorporate the:

A critical piece of these post-retirement reforms is the need to transfer all or part of a member’s accumulation interest into retirement phase.  Transitional arrangements will apply for all existing pensions that will require benefits (up to $1.6m) to be transferred into retirement phase on 30 June 2017.  Only assets in retirement phase will be eligible for tax exemption.

NB. The SMSF Academy will be preparing this documentation to make available within its Campus membership platform in 2017 in readiness for the super reforms.

Moving to retirement phase

From 1 July 2017, section 307-80 of the ITAA 1997 will limit the ability to transfer capital of a member’s superannuation interest into retirement phase unless a member has satisfied one of the following conditions of release (with a nil cashing restriction) contained in Schedule 1 of the SIS Regulations:

  • Item 101 (Retirement)
  • Item 102A (Terminal medical condition)
  • Item 103 (Permanent incapacity); or
  • Item 106 (Attaining age 65)

Most notable in their absence from the current rules are:

  • Item 110 (Attaining preservation age)

Currently this item allows for a member to commence a transition to retirement income stream that would provide a level of tax exemption within the fund on its earnings.  From 1 July 2017, it will no longer be eligible to move into retirement phase, therefore meaning that an income stream that is paid to a member will have its earnings taxed at 15%.

Understanding how members will move into retirement phase, assessment to the transfer balance cap, and how transfer credits and debits will apply to a member’s transfer balance account are all part of the new post-retirement landscape.

I will be covering this information, including new post-retirement strategies to consider in the upcoming SMSF day events to be held around Australia between 8-16 November 2016.  To find out more and to register, visit www.smsfday.com.au.

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