Treasury has been told it could take up to two years to implement the change to the tax super funds pay on income relating to Transition to Retirement Income Streams.
The 2016 Budget included a measure to remove the tax exemption on earnings from assets supporting Transition to Retirement Income Streams (TRISs), from 1 July 2017. Treasury has been consulting on draft legislation to implement this policy.
However super funds say it could take 18 to 24 months to implement this change, according to a submission from the Association of Superannuation Funds of Australia (ASFA).
“Funds have indicated that there is little likelihood of their being able to meet the commencement date of 1 July 2017 with respect to the changes to TRIS and the transfer balance cap as currently drafted,” says the submission.
“With respect to the changes to TRIS, a number of funds have indicated that it will take them up to 18 to 24 months to build the new tax engine that will be required to implement this measure. The alternative – to close their existing products – would take at least nine months to complete.”
“Given that funds have indicated that there is little likelihood of their being able to meet the commencement date of 1 July 2017 with respect to the changes to TRIS we recommend that an industry roundtable be convened as a matter of urgency to workshop potential solutions.”
ASFA says consideration should be given to deferring the measure to 1 July 2018, while acknowledging that deferring the revenue creates “difficulties”.
The ASFA submission also proposes two alternative changes to TRISs: applying the measure prospectively or reducing, for people under age 60, the 15% tax offset for income paid to members from a TRIS. ASFA says that this second option is “significantly simpler for funds and would dramatically decrease implementation costs”.
“These are just two possible alternative options but others may be revealed at the industry roundtable.”
The Financial Planning Association of Australia (FPA) is also concerned by the changes to TRISs, saying that many super funds will stop providing these products.
“The system changes required may make this new category uneconomical for providers,” says the FPA submission.
The FPA recommends a transition period up to 30 June 2024. “During the transition period, members under age 60 could draw their TRIS benefits as lump sums within the annual limits. From 1 July 2024, TRIS account holders would be aged 60 or over.”
The FPA also recommends against proceeding with the ban on SMSFs and small APRA funds from using the segregated method where a member has a pension and a total super balance over $1.6 million.
“We appreciate that the introduction of the transfer balance cap increases the incentive to wash assets through the retirement phase. However, we believe that this issue should be dealt with through anti-avoidance measures, rather than a general prohibition.”