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  • Actuarial certificate requirements

    A SMSF may need an actuarial certificate to claim ECPI in the fund's annual return. The actuarial certificate is used to calculate the amount of ECPI which can be claimed.

    Proportionate method

    SMSF's using the proportionate method will need an actuarial certificate for each year ECPI is claimed, regardless of the type of retirement phase income stream being paid.

    For the 2017-18 income year onwards, SMSFs must use the proportionate method if it has disregarded small fund assets (even if the fund is in 100% in retirement phase) and obtain an actuarial certificate that certifies the proportion of income that is exempt.

    Segregated method

    A SMSF using the segregated method will not need an actuarial certificate to claim ECPI if at all times during the income year the only retirement phase income streams paid were:

    • allocated pensions
    • market-linked pensions
    • account based pensions.

    This applies even where one of the income streams is commenced part way through an income year. It also applies if the fund has not previously claimed ECPI under the proportionate method or the segregated method.

    A fund using the segregated method will need an actuarial certificate to claim ECPI if the fund paid any retirement phase income streams other than those above. Generally these are older style income streams commenced before 20 September 2007. The fund will need to obtain an actuarial certificate covering all the retirement phase income streams it pays.

    Combination of methods used in an income year

    For any period(s) of an income year a SMSF is not 100% in retirement phase, and the fund's assets are not actively segregated, the proportionate method must be used. An actuarial certificate will be needed for that part of the income year.

    An actuary will calculate the exempt proportion for the period(s) of the income year that the fund's assets were not segregated. The exempt proportion the actuary calculates can be applied to the income earned by the fund during these period(s) to make up part of the fund's total ECPI for the income year.

    Only one actuarial certificate is required for the period/s the proportionate method is used, even if a SMSF changes methods multiple times in an income year. An actuarial certificate is not required for the period/s of the income year the segregated method is used.

    Our compliance approach for the 2016-17 year and prior years

    We understand there have been instances where an approach or practice not consistent with our position may have been applied by some SMSF's to calculate ECPI.

    In particular, we understand that in some cases a SMSF that is 100% in retirement phase for part of an income year may have obtained an actuarial certificate using the proportionate method for the entire year, with the exempt proportion calculated by the actuary applied to a fund's income for the full income year.

    Considering the low risk this issue presents regarding prior income years, we do not intend to specifically review ECPI calculations in the 2016-17 income year (and prior) which were made using the proportionate method for the entire income year, despite the fund being 100% in retirement phase for part of the year.

    This compliance approach does not affect our position regarding the operation of the law; that SMSF assets in these instances are segregated for part of an income year. We will maintain this position if formally requested through the relevant advice and guidance channels we provide even if advice or guidance relates to the 2016-17 income year and prior.

    For the purposes of claiming CGT relief, a fund will still be considered to have switched from the segregated method to the proportionate method where the fund ceased being 100% in retirement phase and the fund did not actively use the segregated method.

    From the 2017–18 income year, we expect SMSF's to calculate ECPI and obtain actuarial certificates in line with our position. That is, where a SMSF uses the proportionate method for part of an income year an actuarial certificate is required to claim ECPI for that period.

      Last modified: 15 Aug 2018QC 21546