When assets are segregated or not segregated
We base examples one to 2 on the following circumstances:
- the SMSF has 2 members and, as at the start of the financial year, beneficial ownership of the assets was split evenly (50:50)
- the SMSF received $140,000 in dividends. Franking credits of$60,000 were attached
- the SMSF also earned $34,200 from
- interest of $200
- ordinary trust income of $20,000 (including franking credits of $2,000)
- foreign income of $10,000
- discounted capital gains of $4,000
- the total income of the fund was $234,200 ($200,000 + $34,200)
- the expenses are negligible and can be ignored.
Example 1: assets not segregated
Members A and B have both reached their preservation age. Member A draws a pension of $36,000 from 1 July. Member B is still in accumulation phase within the fund. The assets aren't segregated. The fund has an actuarial certificate detailing that 50% of the fund’s average superannuation liabilities are supporting retirement phase income streams.
Tables 1 and 2 below would be shown on the SMSF annual return.
Field |
Value |
|
---|---|---|
Net capital gain (label A) |
$4,000 |
|
Gross interest (label C) |
$200 |
|
Net foreign income (label D) |
$10,000 |
|
Franked dividend amount (label K) |
$140,000 |
|
Dividend franking credit (label L) |
$60,000 |
|
Gross trust distributions (label M) |
$20,000 |
|
Assessable contributions (label R) |
$0 |
|
Gross income (label W) |
$234,200 |
|
Exempt current pension income (ECPI) (label Y)
|
$117,100 |
|
Total assessable income (label V) |
$117,100 |
0 – label A of the SMSF annual return.
Field |
Value |
|
---|---|---|
Taxable income (label A) |
$117,100 |
|
Tax on Taxable income (label T1) |
$17,565 |
|
Tax on no-TFN contributions (label J) |
$0 |
|
Gross tax (label B) |
$17,565 |
|
|
|
|
Subtotal 1 (label T2) |
$17,565 |
|
Subtotal 2 (label T3) |
$17,565 |
|
Complying fund's franking credits tax offset (label E1) |
$62,000 |
|
Refundable tax offsets (label E) |
$62,000 |
|
Tax payable (label T5) |
$0 |
|
Tax offset refunds (label I) |
$44,435 |
|
Supervisory levy (label L) |
$259 |
|
Amount due or refundable (label S) |
$44,176 |
Example 2: assets are segregated
Members A and B have met their preservation age. Member A draws a pension of $36,000 from 1 July. Member B is still in accumulation phase within the fund.
The assets are segregated. In determining which assets to segregate, the trustee decides to set aside the shares to support the pension. The shares and the remaining assets are of equal value.
Tables 3 and 4 below would show on the SMSF annual return.
Field |
Value |
|
---|---|---|
Net capital gain (label A) |
$4,000 |
|
Gross interest (label C) |
$200 |
|
Net foreign income (label D) |
$10,000 |
|
Franked dividend amount (label K) |
$140,000 |
|
Dividend franking credit (label L) |
$60,000 |
|
Gross trust distributions (label M) |
$20,000 |
|
Assessable contributions (label R) |
$0 |
|
Gross income (label W) |
$234,200 |
|
Exempt current pension income (ECPI) (label Y) (Based on the income from the share assets that are set aside to support pension liabilities) |
$200,000 |
|
Total assessable income (label V) |
$34,200 |
Include ECPI from label Y (table 3) in section A, item 10 – label A of the SMSF annual return.
Field |
Value |
|||
---|---|---|---|---|
Taxable income (label A) |
$34,200 |
|||
Tax on Taxable income (label T1) |
$5,130 |
|||
Tax on no-TFN-quoted contributions (label J) |
$0 |
|||
Gross tax (label B) |
$5,130 |
|||
|
|
|||
Subtotal 1 (label T2) |
$5,130 |
|||
Subtotal 2 (label T3) |
$5,130 |
|||
Complying fund's franking credits tax offset (label E1) |
$62,000 |
|||
Refundable tax offsets (label E) |
$62,000 |
|||
Tax payable (label T5) |
$0 |
|||
Tax offset refunds (label I) |
$56,870 |
|||
Supervisory levy (label L) |
$259 |
|||
Amount due or refundable (label S) |
$56,611 |
End of example
How expenses are treated when an SMSF has ECPI
An SMSF can't claim expenses they incur in deriving ECPI as a deduction in the SMSF annual return. This includes management and administration expenses.
There are certain deductions that can be claimed in full. For example, tax-related expenses such as the supervisory levy and death and disability premiums.
If the SMSF only has a portion earning ECPI:
- apportion the expense if it's incurred deriving both ECPI and assessable income
- only claim the proportion of the expense for the production of assessable income.
See TR 93/17 Income tax: income tax deductions available to superannuation funds.
Example 3: SMSF expenses
AXY SMSF earned $60,000 in interest and paid $500 in bank fees. The SMSF held 80% of its assets to provide for current pension liabilities.
Tables 5 and 6 below would be shown on the SMSF annual return.
Field |
Value |
---|---|
Gross interest (label C) |
$60,000 |
Assessable contributions (label R) |
$0 |
Exempt current pension income (ECPI) (label Y) |
$48,000 (80% of $60,000) |
Total assessable income (label V) |
$12,000 |
Include ECPI from label Y (table 5) in Section A, item 10 – label A of the SMSF annual return.
Field |
Value |
---|---|
Investment expenses (label I1) (see note 1) |
$100 (20% of $500) |
Total deductions (label N) |
$100 |
Taxable income or loss (label O) |
$11,900 |
Total non-deductible expenses (label Y) |
$400 |
Total SMSF expenses (label Z) |
$500 |
Note 1 The remaining bank fees of $400 (80% of $500) can't be claimed as a deduction, because they were incurred in earning the ECPI.
End of exampleTax losses
If an SMSF has income tax losses (not capital losses), reduce the amount of the loss by the net ECPI amount first.
The net ECPI amount is ECPI less any expenses that were incurred in deriving ECPI.
Then, any remaining tax losses can be offset against assessable income of the SMSF. Once the assessable income is reduced to zero, any further losses can be carried forward to the next financial year.
Example 4: SMSF has income tax losses
AXY SMSF earned $30,000 in interest and paid $200 in bank fees. The SMSF held 30% of the its assets to provide for the SMSF's current pension liabilities. It has $10,000 in tax losses carried forward from the previous year.
Table 7, 8 and 9 below would be shown on the SMSF annual return.
Field |
Value |
---|---|
Gross interest (label C) |
$30,000 |
Assessable contributions (label R) |
$0 |
Gross income (label W) |
$30,000 |
Exempt current pension income (ECPI) (label Y) |
$9,000 (30% of $30,000) |
Total assessable income (label V) |
$21,000 |
Include ECPI from label Y (table 7) in Section A, item 10 – label A of the SMSF annual return.
Field |
Value |
---|---|
Investment expenses (label I1) (see note 2) |
$140 (70% of $200) |
Tax losses deducted (label M) (see note 3) |
$1,060 ($10,000 less $8,940) |
Total deductions (label N) |
$1200 |
Taxable income or loss (label O) |
$19,800 |
Total non-deductible expenses (label Y) |
$60 |
Total SMSF expenses (label Z) |
$1260 |
Field |
Value |
---|---|
Tax losses carried forward to later income years (label U) |
$0 |
Note 2: The remaining bank fees of $60 (30% of $200) can't be claimed as a deduction because they were incurred in earning the ECPI.
Note 3: Tax losses carried forward must be reduced by net ECPI before they can be offset against assessable income.
End of exampleHow capital gains and losses are treated when a SMSF has ECPI.
How capital gains and capital losses are treated when an SMSF has ECPI
Example 5: capital gains and capital losses for SMSF's
The fund has 2 members and both have met their preservation age.
Member A draws a pension of $36,000 from 1 July. The fund has segregated assets set aside for member A that resulted in a capital gain of $10,000 and derived $50,000 of ordinary income.
Member B is still in accumulation phase within the fund. The other assets set aside for member B derived ordinary income of $25,000 and resulted in a capital loss of $15,000.
Therefore, the ECPI is the $50,000 for member A. As the gain has come from segregated assets the $10,000 capital gain from these segregated assets is ignored. The $15,000 capital loss from the other assets is carried forward to future years until it can be set off against an assessable capital gain.
Tables 10 and 11 below would be shown on the SMSF annual return.
Field |
Value |
---|---|
Net capital gain (label A) |
$0 |
Assessable contributions (label R) |
$0 |
Other income (label S) |
$75,000 |
Gross income (label W) |
$75,000 |
Exempt current pension income (label Y) |
$50,000 |
Total assessable income (label V) |
$25,000 |
Field |
Value |
---|---|
Net capital losses carried forward to later income years (label V) |
$15,000 |
You should also include ECPI in Section A, item 10 – label A of the SMSF annual return.
Complete a Capital gains tax (CGT) schedule 2025 (NAT 3423-6.2025) if your SMSF has one or more CGT events that happen during the income year and either:
- a CGT event happens in relation to a forestry managed investment scheme interest that is held other than as an initial participant
- the total current year capital gain or capital loss is greater than $10,000.
For more information, see Guide to capital gains tax.