When a member of an SMSF who is receiving a TRIS takes out more than 10% of their account balance during the year, they fail to meet the strict conditions of a TRIS.
The following harsh consequences apply in this situation:
- Pension deemed to have ceased at the start of the financial year
- No tax exemption can be claimed on the income
- All payments taken must be treated as lump sums and if they are preserved benefits they will be taxed at the highest marginal tax rate
It's best to avoid this scenario.
From the ATO:
A Transition-to-retirement income stream (TRIS) can be paid to a member who has reached their preservation age even if they have not retired, but strict annual payment conditions apply.
The minimum annual payment amount depends on the member’s age and the maximum annual payment amount is 10% of the member’s account balance.
If payments are outside the allowable limits, the TRIS is automatically taken to have ceased for income tax purposes from the start of the financial year in question.
This means your fund cannot claim a tax exemption on the income from the account supporting all the payments.
It also means that all the payments made during the financial year will be treated as a lump sum and taxed at the individual’s marginal tax rate unless the payments are unrestricted non-preserved benefits.