The ATO have conducted updates to their technical guidance in regard to claiming exempt current pension income, or ECPI as well as when one requires an actuarial certificate. Two key areas exist where the current industry-practice could be different from the interpretation applied by ATO. Practitioners should thus be mindful of two aspects as follows:
- Segregated pension assets require being in place all financial year through to exclude need for actuarial certification.
- Claiming ECPI is now not an optional undertaking
Segregated pension assets
Recently, the ATO updated a section on its website that explains the exemption of paying taxes on pension assets. It delineates three requirements for putting claims on ECPI without requiring actuarial certification. The ATO states that someone does not require obtaining an actuarial certificate for claiming ECPI under the conditions below:
- When claiming the tax exemption via the segregated assets method
- Where assets were segregated for the full income-year
- If all the time when pensions were payable for the income-year, the SMSF paid just the allocated pensions, account-based pensions or market-linked pensions and not any other form of pension
It is crucial noting that ATO will presume that all fund assets meet the segregation-requirement, if a fund is in pension phase entirely and has only account-based pensions for the entire year. This situation is somewhat of a change in approach for a lot of SMSF practitioners, especially under the following circumstances:
- Pensions Initiated Midway through a Tax Year. ATO states that account-based pensions have to be in place throughout the year for them to be considered as segregated pensions and be exempt from actuarial certification. The certificate will be needed for claiming ECPI for a fund that has pensions starting mid-way through a particular financial year.
- Pension Stopped Midway through a Tax Year. Commuting pensions are subject to the same argument. A fund that ceases pension on any date apart from 30th June is likely to require actuarial certification for claiming ECPI.
- Utilizing Contributions and Rollovers for Starting New Pensions. In essence, funds that receive whether new contributions or rollovers and commence new pensions immediately would be subject to similar treatment. Such pensions would not have been activated for the full financial year that the fund would need an actuarial certificate.
One can however obtain an actuarial certificate in Bellerive swiftly in situations where this is necessary for claiming ECPI.
Claiming ECPI is not optional
A lot of practitioners within the industry had held the view that trustees were not under obligation to claim ECPI under certain circumstances, such as when cost of doing this outweighed the tax benefit appreciably. It was initially thought that trustees could choose to pay tax liable on the income rather than make payment for actuarial certification then claim ECPI. However, the ATO has issued clear guidelines objecting this view. A fund has to claim appropriate amount of ECPI if at any point in the course of the year it gets to pay pensions. The ECPI however needs to be claimed via the unsegregated method, which requires someone to obtain actuarial certification or alternatively employ the segregated method.
Still, one can find the help that Bellerive actuarial certificate services offer quite strategic if it proves necessary presenting the invaluable document.