Is the $3 Million Super Tax Bringing TRIS Back into the Spotlight?

With the proposed superannuation tax changes, many Australians are feeling uneasy about what’s next. The recent talk of an extra tax on super balances above $3 million has sparked concern and left people searching for strategies to manage their super effectively. If you’re among those who might be affected, it’s time to explore whether a Transition to Retirement Income Stream (TRIS) could offer a viable solution, especially if you're between 60 and 65 and still working.

Why the Extra Tax Could Make TRIS More Appealing

If your super balance exceeds the proposed $3 million threshold, you might be wondering how to keep your balance below that limit. Normally, accessing your super early isn't straightforward. You need to meet a condition of release, like retiring or reaching the age of 65. But what if you’re ready to retire now? Are you stuck waiting it out?

Not necessarily! If you’ve reached your preservation age — that’s the age you can access your super, depending on your birth year — you could consider setting up a TRIS. This option allows you to withdraw an income stream from your super before officially retiring, potentially keeping your balance under the threshold.

How Does a TRIS Work?

A Transition to Retirement Income Stream (TRIS) lets you gradually ease into retirement by drawing down a portion of your super while you’re still working. You can withdraw between the minimum pension requirement and up to 10% of your TRIS balance each financial year. After the age of 60, these income stream payments are tax-free, making it an even more attractive option.

Unlike other pension accounts that are capped by the transfer balance cap — currently set at $1.9 million — a TRIS doesn’t count towards this cap until you fully retire or turn 65, whichever comes first. This could provide some much-needed flexibility in managing your super balance strategically.

Let's Look at an Example

Consider John, who’s 62 years old with a total super balance of $3.05 million. If John sets up a TRIS with his entire balance, he could withdraw up to 10% — that’s $305,000 — tax-free in one financial year. Assuming John’s account generates a 7% return for the year, his super balance would reduce to $2.96 million after the withdrawal. This move could keep him under the proposed $3 million threshold and potentially help avoid the extra tax.

Why Has TRIS Lost Popularity and Why Could It Come Back?

TRIS was once a popular strategy, but it has lost some of its shine. Why? Mainly because the earnings on the assets supporting a TRIS balance do not enjoy the same tax-free status as those in a standard pension account. Instead, income is taxed at 15%, and capital gains at 10%, just like in the accumulation phase. However, with the potential new tax on super balances over $3 million, a TRIS might just be back in business.

Setting Up a TRIS: What You Need to Know

So, how do you go about setting up a TRIS? Here are the essentials:

1. Decide How Much: First, decide how much of your super balance you want to convert into a TRIS. Remember, a TRIS account is separate from your accumulation account, so you’ll likely need to establish a new account.

2. Retail Super Funds: If you're with a retail super fund, you’ll need to open a new member account with your super provider. If you’re still contributing to your super, you may have two accounts — one for contributions and one for withdrawals.

3. Self-Managed Super Funds (SMSFs): Setting up a TRIS within an SMSF is often simpler. Once the fund assets are valued, a TRIS account can be set up alongside the accumulation account if you’re still making contributions. Make sure to complete any required establishment paperwork.

Key Points to Remember:

• A TRIS can be started at any point during the financial year.
• A minimum pension amount must be withdrawn each year. For those under 65, the minimum is currently 4%.
• You can’t withdraw more than 10% of your TRIS balance in any financial year.
• Super rules are complex, so always seek professional advice before implementing any strategy.

Who Should Consider a TRIS Strategy?

A TRIS strategy may be most beneficial for those between the ages of 60 and 65 who haven’t yet retired but want to access their super balance. It could also be a useful approach for reducing your total super balance, balancing super amounts between spouses, or moving wealth above $3 million into other investment structures.

What’s Next?

The proposed super tax legislation is still under debate and may not pass in its current form due to opposition in the Senate. Even if it does pass, it won’t come into effect until July 2025, giving you ample time to seek advice and weigh your options. The key is to stay informed and proactive.

Our Take at Transpire Wealth

Here at Transpire Wealth, we’re all about turning complex superannuation strategies into straightforward, actionable plans. If you’re concerned about the proposed changes or considering a TRIS, it’s crucial to consult with a financial advisor who understands the nuances and can tailor a strategy to suit your individual needs.

Remember, there’s no need to rush into any decisions. Take your time, explore your options, and make sure any moves you make are in line with your long-term financial goals. If you need help navigating the superannuation landscape, we’re here to guide you every step of the way.

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