SMSF Knowhow and Insights
When do I need an account based certificate?
An actuarial certificate is required to support claims for exemption from income tax for the pension portion for those funds where there is at least one accumulation balance and at least one pension balance throughout the year, and these balances aren't fully supported by segregated assets for at least one full income year.
How have the requirements to obtain an actuarial certificate changed? 2015
The ATO have clarified that the industry approach regarding when a certificate is required or not is appropriate. After a bit of a miscommunication/misunderstanding earlier in 2015, the ATO have had discussions with Act2 and other actuarial certificate providers and agreed that in the circumstances where actuarial providers generally advise their clients that no certificate is required, this approach is acceptable to the ATO.
These circumstances are:
- When a Superannuation Fund moves entirely from Accumulation Phase to Pension Phase at one date during the income year and remains entirely in Pension Phase for the rest of the year, no certificate is required to claim Exempt Current Pension Income (ECPI). This is because the earnings received prior to commencement are taxable and can easily be identified as separate to the Pension Earnings that were received after Pension Commencement which will be exempt. This circumstance is commonly known as 'segregation by default' as the Pension Assets are separate from the Acccumulation Assets but without explicit segregation having to take place.
- Circumstances where the amount of ECPI eligible for exemption is minimal (say less than the cost of the actuarial certificate). In this circumstance, most actuarial providers will advise the client that the Trustees will be better off simply paying the extra bit of tax, rather than spending the cost of the actuarial certificate to save less than that in income tax.
We understand that this information will be further clarified on the ATO website shortly.
Which pensions are Account-Based Pensions (ABPs)?
Allocated Pensions, Term-Allocated/Market-Linked Pensions, Transition to Retirement Income Streams and Account-Based (SIS) Pensions are all known as ABPs.
Which pensions are NOT ABPs
This is simpler - those Defined Benefit Pensions (commonly referred to as Complying Pensions) are not ABPs that are known as:
- Lifetime Complying - 1.06(2),
- Life Expectancy Complying - 1.06(7) or
- Commutable/Flexi/Non-Complying Pensions - 1.06(6)
These all require a special Actuarial Certificate every year - regardless of the fund circumstances.