How to process a Non-Commutable Income Stream from Insurance Proceeds
If the condition of release is "Temporary Incapacity", the only way to access the benefits is through a non-commutable income stream (NCIS).
- Class currently does not have any functionality to set up NCIS.
- NCIS is not the same as an account-based pension or TRIS.
- NCIS do not get pension exemption benefits.
- The income stream is usually for 2 years, and must not exceed the period of temporary incapacity.
- Such a payment is usually funded by Income Protection/Salary Continuance Insurance within the SMSF. It is recommended to check whether the trustees are claiming and paying the proceeds from insurance to the member.
- NCIS are taxed at the member's marginal tax rates and there is no tax offset applicable.
To resolve this issue you need to:
Step 1: Process the insurance proceeds
Process the insurance proceeds
Navigate to Fund Level > Transactions > Member Income > Member Insurance Proceeds
- Enter the details of the insurance proceeds
Process the proceeds from an accumulation account
Navigate to Fund Level > Transactions > Member Payment > Rollover out or lump sum payment.
- Process the payments as regular "lump sum" payments from the member's accumulation balance
- Process PAYG Withholding as a normal wage/salary earner, not a superannuation income stream recipient, even if the member is over 60 years old.
- Produce PAYG Payment Summaries (not as a superannuation income stream) manually and work out the PAYG Witholding amount manually based on the ATO formula.
- Where the payments are made as a result of a member's temporary or permanent incapacity, when the Annual Return is prepared, change the benefit type from Lump Sum to Income Stream using Code R: Other income stream