Income stream products set for innovative changes as
further tax concessions are considered.
NEED TO KNOW
On 21 March 2017, the Federal Government released a
draft version of the Treasury Laws Amendment (Innovative
Superannuation Income Streams) Regulations 2017 (the
Regulations), and accompanying
explanatory statement, for public consultation.
The Regulations, which will come into effect on 1 July 2017,
give effect to the retirement income strategy included in the
superannuation reforms announced by the Federal Government in
its 2016/2017 Budget.
Earnings tax exemptions will be available to superannuation
funds and life insurance companies offering income stream products
such as deferred products, investment-linked pensions and annuities
and group self-annuitised products.
By incentivising providers to offer these products, the
Regulations aim to remove barriers to innovation in retirement
income stream products, and allow retirees to have more choice and
better manage consumption and longevity risk.
SUMMARY OF REGULATIONS
The Regulations introduce a new set of income stream standards
to the Superannuation Industry (Supervision) Regulations 1994. The
standards aim to cover a range of products that are currently not
considered pensions or annuities for the purposes of the
Superannuation Industry (Supervision) Act 1993.
The elements of the income stream standards are set out
Benefit payments can only commence after a condition of release
is satisfied, including once the primary beneficiary has retired,
has a terminal medical condition, is permanently incapacitated or
has reached the age of 65;
Benefit payments must be made annually, unless the income
stream is a deferred superannuation income stream and payments have
not commenced. These payments must be payable throughout the
beneficiary's remaining lifetime;
Benefit payments cannot be unreasonably deferred after
commencing. The standards set out rules for determining what is
unreasonable, factoring in if payments depend on returns of an
investment of assets supporting the benefit, or age or life
A cap is applied to the amount of capital that can be accessed
through a lump sum commutation, or on a commutation of an amount
that is then rolled over within the superannuation system,
beginning on the 'retirement phase start day'.
Under the new Regulations, income streams that satisfy the new
standards will now fall within the definition of
'superannuation income stream' in the Income Tax
Assessment Act 1997. Accordingly, superannuation funds and
life insurance companies that provide these products will be
eligible for an earnings tax exemption on income from assets held
to support these streams, where an interest in the income stream is
held for an individual in the retirement phase. The recipients of
payments from these income streams will similarly be entitled to
tax concessions relating to superannuation benefit payments.
These Regulations mean that tax concessions will be available
for provision of a number of less common products, including
deferred products, investment-linked pensions and annuities and
group self-annuitised products.
The closing date for submissions commenting on the exposure
draft Regulations and Explanatory Statement is 12 April 2017.
We are able to provide you with further information or guidance
about the Regulations. The contacts listed to the right of this
article can assist you with further information.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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