From 1 July 2017, your transition to retirement income stream (TRIS) investment earnings will be taxed at 15%, regardless of when you opened your account. Currently you do not pay tax on TRIS earnings.

Will this new tax affect your TRIS strategy?   

The answer depends on several factors including your age, work situation and why you originally set up your TRIS. We've prepared two examples to illustrate the impact of the new tax on those aged under 60 years and those aged 60 years and over.

Example 1: Under 60 years of age

John is 57 on a salary of $85,000 ($93,075 including super) and has an opening super balance of $200,000 plus a TRIS. He makes salary sacrifice contributions to his super account which, on top of his SG contributions, takes his concessional contributions to the annual cap from 1 July 2017 of $25,000. He draws income from his TRIS account to top up his take-home pay.

Currently (before 1 July 2017) this strategy boosts his account balance by $1,818 a year with no impact on net income (cash flow). After 1 July, however, there will be little financial advantage in having a TRIS.

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Income Accumulation TRIS plus salary sacrifice before 1 July 2017 TRIS plus salary sacrifice after 1 July 2017
Gross salary (incl. SG) $93,075 $93,075 $93,075
Less SG contributions @9.5% ($8,075) ($8,075) ($8,075)
Less salary sacrifice $0 ($16,925) ($16,925)
Plus TRIS payments $0 $13,771 $13,771
Equals taxable income $85,000 $81,846 $81,846
Less tax^1 ($20,872) ($17,718) ($17,718)
Net income (cash flow) $64,128 $64,128 $64,128
Super balance Accumulation TRIS before 1 July 2017 TRIS after 1 July 2017
Super balance start $200,000 $200,000 $200,000
Plus net contributions to super $6,864 $21,250 $21,250
Less TRIS payments $0 ($13,771) ($13,771)
Super balance before earnings $206,864 $207,479 $207,479
Plus net investment earnings $10,426 $11,629 $9,886
Super balance after one year $217,290 $219,108 $217,365
Benefit of a TRIS plus salary sacrifice N/A $1,818 $75

View the full assumptions 

Example 2: 60 years of age and over

Let’s see what happens if John is 60. Again John is on a salary of $85,000 ($93,075 including super) and has an opening super balance of $200,000 plus a TRIS. He makes concessional contributions to his super account up to the annual cap from 1 July 2017 of $25,000 and draws income from his TRIS account to top up his take-home pay.

Because John is over 60, there is no tax on the TRIS payments. This means John is currently better off by $4,654 a year through his TRIS and salary sacrifice arrangement.

What impact will the new 1 July earnings tax have?

Even with the new tax, John will still be almost $2,900 better off by continuing his TRIS and salary sacrifice strategy.

Income Accumulation TRIS plus salary sacrifice before 1 July 2017 TRIS plus salary sacrifice after 1 July 2017
Gross salary (incl. SG) $93,075 $93,075 $93,075
Less SG contributions @9.5% ($8,075) ($8,075) ($8,075)
Less salary sacrifice $0 ($16,925) ($16,925)
Equals taxable income $85,000 $68,075 $68,075
Less income tax and Medicare levy ($20,872) ($15,033) ($15,033)
Plus TRIS payments $0 $11,086 $11,086
Net income (cash flow) $64,128 $64,128 $64,128
Super balance Accumulation TRIS before 1 July 2017 TRIS after 1 July 2017
Super balance start $200,000 $200,000 $200,000
Plus net contributions to super $6,864 $21,250 $21,250
Less TRIS payments $0 ($11,086) ($11,086)
Super balance before earnings $206,864 $210,164 $210,164
Plus net investment earnings $10,426 $11,780 $10,015
Super balance after one year $217,290 $221,944 $220,179
Benefit of a TRIS plus salary sacrifice   $4,654 $2,889

View the full assumptions

Everyone’s situation is different

Before making any decisions, it’s important to understand your options. Our financial planners can review your circumstances and help you make the right decision. To find out how we can help you, contact us.
 

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These scenarios have been included for demonstrative purposes and include general information and financial projections based on assumptions about the future. They do not take into account your specific objectives, financial situation or needs.

It is recommended that you consult with a financial planner who can take into account your personal circumstances.

  • Two members; one under 60 and the other 60 years of age
  • Salary $85,000, plus Super Guarantee of 9.5%
  • Same net take-home pay under all scenarios
  • Superannuation balance $200,000 that is all taxable (no tax free component)
  • From 1 July 2017 all earnings inside a TRIS become taxable (which is now the same as accumulation account). Prior to 1 July 2017 earnings in a TRIS were exempt from tax
  • First State Super administration fees are included
  • Under 60 years of age pension payments drawn from a TRIS are taxed at marginal tax rate, less a tax offset of 15%
  • 60 and over, there is no tax on pension payments drawn from a TRIS
  • Assumed investment returns after fees and taxes:
    • Accumulation 5.04%
    • TRIS pre 1 July 2017 5.63%
    • TRIS post 1 July 2017 4.79% 

  1. Includes income tax, Medicare levy, Medicare and TRIS offset tax.