Entity Setup
Entity Setup & Tax Planning: Using Legacy Retirement Products Wisely
Legacy retirement products come with both opportunities and traps. The recent regulations unlock flexibility, but also shift tax classification which could affect your contribution caps.
By NomadicTax Research Team • 5-8 min read • April 18, 2026
## What Are Legacy Retirement Products?
Legacy retirement income streams are those that generally commenced **before 20 September 2007**, or were conversions of products established before then. These include lifetime annuities, market-linked pensions, and life-expectancy pensions. ([ato.gov.au](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/relaxed-commutation-rules-for-legacy-retirement-products?utm_source=openai))
## What's Changing—Commutations & Reserve Allocations
From **7 December 2024** to **6 December 2029**, the *Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024* permit legacy income stream products to be *fully commuted* during that period, if fund rules allow. This means an individual can exit these products more flexibly—a big change from previous restrictions. ([ato.gov.au](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/relaxed-commutation-rules-for-legacy-retirement-products?utm_source=openai))
Also, the way reserve allocations are treated for tax has shifted:
- Allocations from reserves that support income streams that are ceased, and allocated to the former recipient, are now **exempt from both concessional and non-concessional contribution caps**. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-d47319ee-3e1a-4e77-ac35-e0d92790f63a?utm_source=openai))
- Other reserve allocations now count toward the **non-concessional contributions cap** rather than concessional cap, which may create cap exposure risk. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-d47319ee-3e1a-4e77-ac35-e0d92790f63a?utm_source=openai))
## Tax Planning Implications
### For Individuals with Legacy Products:
- If you plan to exit a legacy product (convert or commute), doing it **within the 5-year window** (7 December 2024 to 6 December 2029) may be more tax-efficient and avoids previous limitations. ([ato.gov.au](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/relaxed-commutation-rules-for-legacy-retirement-products?utm_source=openai))
- Be careful with reserve allocations: Ensure that allocations after ceasing an income stream are structured to meet the exemption where possible. Otherwise, such allocations might reduce your non-concessional contribution capacity.
### For New Entity Setups or Fund Structuring:
- SMSFs or APRA funds must review product rules if they are legacy products. If rules prohibit full commutation, consider amending them to allow commutation within the valid window. ([ato.gov.au](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/relaxed-commutation-rules-for-legacy-retirement-products?utm_source=openai))
- Any reserves maintained that may relate to income streams should be evaluated to ensure allocations are properly classified and allowances or exemptions utilized.
## Example Strategy
Thomas has a lifetime annuity from a legacy product with significant reserves. Since the trustee can amend fund rules, Thomas arranges for full commutation in early 2026, exits the income stream, and shifts his funds into accumulation phase, optimizing his projection of future tax on earnings. Meanwhile, reserve allocations after exit are structured to qualify for the exemption from caps. Advisors helped Thomas avoid unintended exposure to non-concessional cap limits.
**Conclusion:** Legacy retirement product reforms provide both newfound flexibility and new exposure. Correctly structuring commutations, understanding cap implications, and ensuring fund rules permit desired actions are key for entity setup and tax planning.
By combining careful foresight with current regulations, individuals and entities alike can make the most of these changes without falling into compliance traps.