Amongst the changes in the 2016 Federal Budget was legislation to remove tax concessions for transition to retirement pensions (TTRs) and bring them closer to their purpose of providing income to members as they transition to retirement.

The new rules removed the tax exempt status that TTRs have long enjoyed on earnings on fund investments. Assets supporting a TTR are taxed at 15% from 1 July 2017.

The main issues that you need to consider because of the changes include:

  • Having a clear objective of the purpose of maintaining a TTR or setting one up in your fund. Without the tax exempt status TTRs are no longer a ‘no-brainer’ in garnering tax concessions for your finances.
  • TTRs are still useful to help you:
    • Cut back on work hours and supplement your income with pension payments as you move towards retirement.
    • Increase your income with pension payments while you continue in the workforce until a full condition of release is met.
    • Reduce your taxable income and increase your superannuation balance without effecting your take home pay through a salary sacrifice arrangement.
  • Reviewing your situation to determine if you have met or soon will be eligible to start an account based pension (which has tax-free earnings) instead of a TTR.
  • Ensuring that a condition of release (an event that allows you to access your super) has been met which allows a TTR to be commenced.
  • Determining your eligibility and capacity to make salary sacrifice or deductible contributions pre and post 1 July 2017 will assist in a decision to start or maintain a TTR.

Transition to retirement pensions must still meet the current pension minimum standards beyond 1 July 2017. This means a minimum pension withdrawal of 4% and a maximum pension withdrawal of 10% of your TTR balance.

Source: SMSF Association

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The article is of a general nature only and is not to be taken as recommendations as it might be unsuited to your specific circumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.

Technical Papers contain general advice only and are prepared without taking into account particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. While the SMSF Association believes that the information provided is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.

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