At the commencement of the income stream the member can specify what percentage of the accumulation account will be used to commence a pension. Regulation 307-200.05 of the ITAR 1997 provides that once a superannuation income stream ‘commences’, an amount that supports the superannuation income stream is always to be treated as a separate superannuation interest.
The proportioning rule in section 307-125 of the ITAA 1997 requires the tax free and taxable proportions of a superannuation interest to be determined at the time of commencement of the pension. When any benefit is paid from the superannuation interest, the trustees must ensure that the benefit contains the same proportions of tax free and taxable components as the superannuation interest from which it is paid.
Note, when there is an increase in pension assets, due to income, such as interest, dividends, realised or unrealised gains, the tax free and taxable component of the capital of the income stream increases in the same proportion. This means that whatever is the proportion of taxable and tax free components at the time of commencement of income stream, it remains “locked in” till the income stream ceases