Self managed superannuation funds (SMSFs) are not required to obtain an actuarial certificate if 100% of the SMSF is in “pension phase” for 100% of the year. That is, the SMSF uses the segregated method for the whole year. But what happens for SMSFs that use the segregated method for the 2017 year but, because of the transfer balance cap measure, have to commute back their pensions to $1.6 million by 30 June 2017?
The ATO has confirmed that any SMSFs using the segregated method will need to obtain an actuarial certificate if they commute back their pensions on or before 30 June 2017 and wish to claim exempt current pension income (ECPI) for the period the SMSF is not fully in pension phase. This is the case even if the SMSF commutes back the pension on 30 June 2017. It is important to note that the ATO’s view only applies to income derived before the fund become unsegregated; income derived by the SMSF when it was segregated will qualify as ECPI without an actuarial certificate.
The ATO has indicated that they will offer a concessionary approach for the 2017 year, in that they will permit an SMSF to obtain an actuarial certificate for a whole year and apply it for the period that the SMSF is no longer segregated. For example, an SMSF could obtain a certificate for the whole year and apply it for the one day the SMSF is unsegregated (ie 30 June 2017). In many cases, this will mean the SMSF will be deemed to be 100% in pension phase for the year.
So what options do SMSFs have? Firstly, an SMSF can choose not to obtain an actuarial certificate and forgo the ECPI during the period it ceases to be segregated. An SMSF may do this because it commutes its pensions back on 30 June 2017 and the SMSF does not derive any income on that day. That will not work for many SMSFs that receive significant income on 30 June – for example, from managed funds.
Secondly, the SMSF could obtain an actuarial certificate for the whole year. As noted above, for many SMSFs, this could result in most, if not all, of the SMSF’s income being eligible for ECPI. This option is likely to be particularly attractive to SMSFs that cease to be segregated before 30 June 2017 – for example SMSFs that cease to be segregated when they receive non-concessional contributions in May or early June 2017 – as those SMSFs are likely to receive a significant amount of income while the SMSF is unsegregated.
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