What has changed?
There have been significant changes made to the ATO interpretation for calculating ECPI in the 2017/2018 Financial year and later for where a fund deemed to be segregated (100% pension phase) as well as changes due to the Super Reforms.
TRIS will no longer be eligible for ECPI
From 1 July 2017, income derived from assets supporting a TRIS will generally no longer be eligible for the pension earnings exemption. Earnings will now be taxed at 15% as a TRIS is generally not considered to be in the tax-free retirement phase.
However, there is an important exception to this rule, which applies where a fund member in receipt of a TRIS satisfies a specified condition of release with a nil cashing restriction (example reaching age 65). This is shown as TRIS (Retirment Phase) below.
| Member Phase |
≤ 2017 FY |
≥ 2018 FY |
|---|---|---|
|
Accumulation
|
Accumulation
|
Accumulation
TRIS
|
|
Retirement Phase / Pension Phase |
TRISABP
Market Linked
Allocated Pension
Complying / Defined Benefit
|
TRIS (Retirement Phase)ABP
Market Linked
Allocated Pension
Complying / Defined Benefit
|
SMSF Assets are segregated for part of an income year
2016 - 2017 and prior financial years:
A fund that was in 100% pension phase for part of an income year was required to obtain an actuarial certificate on the basis that the fund assets were unsegregated for the entire year. The fund was required to apply the actuarial percentage to the fund's income for the entire financial year.
2017 - 2018 and subsequent financial years:
Where a SMSF's assets are unsegregated for part of an income year, the SMSF trustee will be required to obtain an actuarial certificate pertaining to that part of the income year if they wish to claim an ECPI deduction for income received during that period.
Summary
This means that if the assets of an SMSF are segregated for only part of an income year and you wish to claim ECPI for the remaining period of the year in which the assets of your SMSF are unsegregated, you will be required to obtain an actuarial certificate for the period your fund's assets are unsegregated.
The previous approach by the ATO and the industry was to either apply the Segregated or Unsegregated method for the entire year.
Example:
At 1st July, a fund has two members:
- One in pension mode
- One in accumulation mode
On 1 March the accumulation member converts from accumulation phase to pension phase making the fund 100% pension phase for the remainder of year.
2017 and prior financial years treatment
- Actuarial Certificate would be obtained
- Unsegregated method using the Tax Exempt proportion determined by the Actuary for entire financial year
2018 and subsequent financial years treatment
- Actuarial Certificate is obtained
- Unsegregated method using the Tax Exempt proportion determined by the Actuary is applied for first 8 months
- For the period 01 March - 30 June the segregated method (100 Tax Exempt) is applied
Restrictions on using the Segregated Method
From 1 July 2017, a fund cannot have any assets classified as segregated at any time during a particular financial year if at the previous 30 June:
- any member had a total superannuation balance of more than $1.6 million
- any of those members with more than $1.6 million also had a retirement-phase pension from any fund (not necessarily this SMSF).
Total Superannuation Balance
Total superannuation balance includes not just the balance in the SMSF but all superannuation in every fund to which the member belongs
If a fund cannot be classified as segregated, it simply means it cannot claim its tax exemption on a segregated basis. The fund is still eligible for an exemption, but under the Unsegregated method.
Example
At 1st July, a fund has 1 member who is solely in Pension/Retirement Phase.
The member has a balance in the SMSF on June 30 in the previous year of $900,000 and also had an Industry Fund balance of $900,000.
The member is in retirement phase for the entire year.
2017 and prior financial years treatment
- No Actuarial Certificate is needed
- Segregated method is used and applied for the entire financial year
2018 and subsequent financial years treatment
- Actuarial Certificate is obtained
- Segregated Method is not allowed
- Unsegregated method using the Tax Exempt proportion determined by the Actuary is applied for entire year.
What will change in Simple Fund 360?
Fund Pension Policies - Use Segregated and Unsegregated method in the same Financial Year
The Pension Policies updated to support part-year policies for the 2018 and later Financial Year.
Fund Pension Policies - Manual Policy
Where an Actuarial Certificateis not required, the Manual Data entry screen now allows you to enter the periods of the year where the fund is using the segregated method.
Actuary Certificate Application
The data which BGL sends to Actuaries has been changed so that Actuaries now have details of:
- Which periods use the segregated method and which will use the Unsegregated
- Whether the fund is eligible to use the segregated method
- When they convert to a TRIS Retirement Phase account
Integrated Actuary Providers
For a list of supported providers, please refer to Fund Pension Policies
TRIS Accounts
A new option has been added to convert and support an TRIS that satisfies a specified condition of release with a nil cashing restriction (example reaching age 65).
This will be classified as a TRIS - Retirement Phase in Simple Fund 360. Refer to How to convert a TRIS to TRIS - Retirement Phase
The Create Entries process has been updated to calculate Income Tax differently for TRIS Accounts depending on the Financial Year.
| Member Phase | Tax Treatment |
2017 Financial Year and prior Accounts in SF360 |
2018 Financial Year and later Accounts in SF360 |
|---|---|---|---|
|
Accumulation
|
Treated as Accumulation for Actuarial Certificates Taxable in Create Entries |
Accumulation
|
Accumulation
TRIS
|
|
Retirement Phase / Pension Phase |
Treated as Pension Account for Actuarial Certificates No Tax in Create Entries |
TRIS
ABP
Market Linked
Allocated Pension
Complying / Defined Benefit
|
TRIS (Retirement Phase)
ABP
Market Linked
Allocated Pension
Complying / Defined Benefit
|
Create Entries
Calculations for the Create Entries and population of the 2018 SMSF Annual Return have been updated to support the mixture of segregated and unsegregated periods in a Financial Year.
Where the period is Segregated, Capital Gains and losses for the period will be ignored and all income will be fully exempt (100%).
Where the period is Unsegregated, Capital Gains and losses for the period will be included in the Fund's Net Capital Gain Calculation and all income will be exempted by the Tax Exempt Percentage calculated by the Actuary.
The following reports have been updated to reflect these changes:
- Create Entries Report
- Exempt Pension Reconciliation
- Deferred Tax Reconciliation
- Capital Gains Reconciliation
Instructions
Example - Manually Enter Details
At 1 July 2017 A fund has 2 members, one in pension phase and the other in accumulation. On 15 May 2018, one of the members commences a new pension using the entire balance of the account.
To process this in Simple Fund 360:
1. Navigate to the Fund Pension Policies screen
| From the Main Toolbar, go to Member. |
|
| Select Fund pension policies from the list. |
|
2. Click New Actuarial Certificate
3. Select Manually Enter Details and select the financial year:
4. Click Manually Enter Details
5. Enter the Tax Exempt (Actuarial) Percentage for the Unsegregated period:
6. Enter the Start date as the date the segregated period commences. This will be the day the pension commences in this example. Enter the End date for the Segregated period then click Add:
7. Choose the method to calculate the expense deduction then click Save:
8. Review the fund pension policy posted by Simple Fund 360:
Example - Using an integrated actuary certificate provider
To process the scenario above using Simple Fund 360's integrated actuary certificate providers:
1. Navigate to the Fund Pension Policies screen
| From the Main Toolbar, go to Member. |
|
| Select Fund pension policies from the list. |
|
2. Click New Actuarial Certificate
3. Select Request Actuarial Certificate and the financial year:
4. Click Request Actuarial Certificate
5. Select a supported provider then click Next
Integrated Actuary Providers
For a list of supported providers, please refer to Fund Pension Policies
6. Confirm the contact details for the fund then click Next
7. Confirm the fund's eligibility to use the Segregated method (applicable in this example) then click Submit to Actuary:
8. Click Click here to complete your application
9. Log in the the actuary certificate provider's website (This example is using Act2):
10. Review the details of the percentage then request the certificate:
11. Review the fund pension policy received from the actuary provider in Simple Fund 360:
Certificate Status
The Certificate Status will sometimes not change to Confirmed when requesting a certificate through Act2. Act2 will add this ability at a later stage.
General and Investment Expense Percentages (non-deductible expenses)
Generally, if an expense is incurred which relates to both accumulation and pension, the expense must be apportioned so that only the proportion of the expense for the production of assessable income is claimed.
Use ATO Formula (TR 93/17)
BGL has confirmed with the ATO that the methodology for calculating the proportion does not need to be changed and should still be conducted on an annual basis as it is seen to be fair and reasonable to use in certain circumstances.
These percentages will pre-fill using the ATO Formula TR 93/17 during the Create Entries process.
User Specified and Use Actuarial %
Simple Fund 360 will provide you with the versatility to use the ATO formula but also a User-Specified % or Actuarial %.
In the 2017/2018 financial year if the fund has a both a deemed segregated and unsegregated segment and you are using the User-Specified % or Actuarial %. Simple Fund 360 will apply the expense percentage to the unsegregated segment(s) only. The ability to include a tax adjustment in the final year-end create entries is also available.
References
For further details please read
Accurium - What is an actuarial certificate and when is it required
Act2: Deemed Segregation - The Beginner’s Guide
Heffron - How many actuarial certificates will I need in 2017/18?
Lime Actuarial - the new world of ECPI