The introduction of transition to retirement legislation has been one of the biggest changes introduced to the superannuation system in years.

It allows people aged 55 and over who want to scale back their working hours to perhaps reduce the number of days they work and supplement their lower income by tapping into their superannuation.

There is also the option under the new legislation of continuing to work full-time and salary sacrificing more income into superannuation, which can then be withdrawn on a concessionally taxed basis. Once accumulated funds are moved from superannuation into an allocated pension, the tax on investment earnings reduces from 15 per cent to zero.

The potential tax benefits of transition to retirement, if certain strategies are adopted, has prompted the Australian Tax Office to clarify its view on whether workers aged 55 and over who do make salary sacrifice contributions into super, and who at the same time draw down from their super at a lower tax rate, should be subject to the ATO’s general tax-avoidance provisions.

The ATO says that "arrangements entered into in a straight forward way are consistent with the operation of the law, and we do not see grounds for applying anti-avoidance rules. For example, an eligible person may take out a pension under the transition to retirement rules. At the same time, that person may engage in an effective salary sacrifice arrangement and contribute to a complying superannuation fund for their own benefit.

"We would only be concerned where accessing the pension or undertaking the salary sacrifice may be artificial or contrived."

Individual taxpayers should seek further clarification about the consequences of their particular arrangements, which can be achieved by requesting a private ruling from the ATO.

Contact us if you require further guidance on this issue.