Show download pdf controls
  • Exempt current pension income

    Income – a complying self-managed super fund (SMSF) earns from assets held to provide for retirement phase super income streams – is exempt from income tax.

    This is called exempt current pension income (ECPI). ECPI does not include assessable contributions or non-arm’s-length income.

    From 1 July 2017, funds are not able to claim ECPI for the earnings from assets supporting a transition to retirement income stream (TRIS) that is not in the retirement phase. These earnings will be taxed at 15%. This will apply to all TRIS that are not in the retirement phase regardless of the date the TRIS started.

    You can claim the tax exemption in your SMSF annual return once your SMSF begins paying 'super income stream benefits' (commonly referred to as pensions) that are in the retirement phase. However, your SMSF is not automatically entitled to the exemption.

    To claim ECPI in the SMSF annual return, there are steps you must take before starting payment of the retirement phase super income stream benefit such as ensuring all the SMSF’s assets are re-valued to their current market value. In the case of a TRIS, these steps must also be taken when it moves into the retirement phase.

    If an SMSF has income tax losses (not capital losses), the amount of the loss should be reduced by the amount of the net ECPI (this is the amount of ECPI less any expenses that were incurred in deriving ECPI). The remaining tax losses can be offset against any assessable income of the SMSF or carried forward to the next financial year.

    CGT relief is available to assist funds who take action to comply with the new transfer balance cap and TRIS reforms that started on 1 July 2017. The assets eligible for CGT relief will depend on how you calculate ECPI.

    Find out about:

    Last modified: 02 May 2018QC 23343