Beware of Automatic Triggers of Release

27 Nov 2019

Written by

David Busoli, Principal

Recent press has drawn attention to the risk of inadvertently converting a member balance to unrestricted non-preserved. This effects both the total super balance treatment of certain SMSF limited recourse borrowings and also to members’ transfer balance accounts arising from the transfer of transition to retirement pensions to retirement phase pensions, potentially breaching the transfer balance cap. The lack of forward planning, inherent in an inadvertent trigger of release, could cause an issue – but how likely is this?

The counting of the LRBA towards a member’s total super balance is important but does not, in itself, cause a penalty to be raised. In contrast, the change to the pension may do so as the ATO will automatically assume a conversion of a TRIS to retirement phase when the member reaches age 65. That’s why we warn our Alliance Partners a month before their TRIS clients’ 65th birthday to consider this imminent trigger. Apart from turning 65 or death, there is no other trigger of release that will be processed as such unless the member specifically requests it. Accordingly, changing a situation of employment after age 60 or becoming totally and permanently disabled will not lead to a potential breach notice from the ATO as the member records will not convert to unrestricted non-preserved unless proactive action has been taken to do so. Presumably, as part of this action, the conversion of any existing TRISs will be considered.

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