Colonial First State expects that the ATO will release a public ruling on a transition to retirement income stream (TRIS) strategy involving payments being taxed as a lump sum.
Speaking to SMSF Adviser, Colonial First State executive manager Craig Day said following the issue of a private binding ruling by the ATO last year, allowing the use of this strategy, it is likely the ATO will now be dealing with a large number of private binding ruling (PBR) requests on the same issue.
Mr Day said the ATO will be considering how it can efficiently respond to all these requests and will look to release further guidance to clarify the issue rather than having to deal with a large number of PBR requests separately.
“I would expect a clarification in the form of a ruling from the commissioner,” said Mr Day.
While the ATO released information last week highlighting the potential issues and ramifications of the strategy, Mr Day said this does not provide an ATO position on it.
The information stated, among other things, that “electing for a TRIS payment to be treated as a super lump sum for income tax purposes may affect the amount of the SMSF’s exempt current pension income for an income year and whether particular fund assets are segregated current pension assets”.
The ATO’s full release can be found here.
“What this appears to say is that the ATO has identified that as a potential issue but don’t have a position on it yet,” said Mr Day.
“Until this issue is clarified it would be prudent, if you wanted to implement this strategy, to seek your own private binding ruling.”
He also warned that if the ATO concludes that treating TRIS payments as a super lump sum for income tax purposes does affect the amount of exempt current pension income, then this could also impact a fund’s ability to claim exempt current pension income where they have taken a commutation out of the fund.
“It’s completely different to this [TRIS] strategy but where they’ve actually commuted and taken a lump sum and elected for it to be taken as a lump sum that would also appear to be impacted by what they’re saying.”
The ATO will have to take this into consideration when it formalises its view, he added.