Federal Budget Q&A - Transition to retirement

The tax exemption on earnings in a transition to retirement (TTR) pension will be removed, thereby reducing the tax-effectiveness of a TTR strategy. Withdrawals from TTR pensions will also not be able to be taxed as lump sums. If you are over 60 you will still benefit from receiving tax-free pension payments.

In a move to limit the amount of tax-free earnings on your super, the Government intends to place a cap of $1.6 million on the amount you can transfer into your pension account. Any future earnings generated in your pension account will not be affected, even if the balance goes over $1.6 million.

When can taxpayers no longer elect to treat transition to retirement payments as lump sums for tax purposes?

The proposal applies from 1 July 2017.

In addition, the proposal will apply to all pensions and it will no longer be possible to make a withdrawal from a pension and have it taxed as a lump sum payment. It will be possible to make lump sum withdrawals from accumulation accounts.

What if you have CGT tax losses carried forward regarding the 15 per cent tax?

The proposal is that the taxation is the same as in accumulation phase. Accordingly, CGT losses will continue to be able to be carried forward and offset future capital gains.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.

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