In the new world of exempt current pension income (ECPI), if a fund 100 per cent in pension receives a contribution, and a new pension is commenced with that amount immediately on receipt, it can be difficult to work out whether an actuarial certificate is required, Zoë Redman of Heffron SMSF Solutions explained.
Ms Redman explained in an online blog that if a fund is ineligible to segregate, then an actuarial certificate will always be required to claim any exempt current pension income.
A fund may be ineligible to segregate if a pensioner had a total superannuation balance greater than $1.6 million at the previous 30 June, said Ms Redman.
“Any such certificate will cover the entire financial year, and the receipt of a contribution moved immediately into pension phase will have no impact on the exemption percentage,” she said.
Where a fund is eligible to segregate, however, as no member in receipt of a pension had a total superannuation balance above $1.6 million at the previous 30 June, then it must do so, said Ms Redman.
“For this type of fund, the receipt of a contribution will cause it to move from totally supporting pension accounts to supporting both pension and accumulation accounts, albeit only for part of a day,” she said.
This means that under the current legislation, she said, if there was income generated on the day of the contribution, you would expect that an actuarial certificate should be obtained to exempt some of this income.
“However, whilst this may be the technically correct answer, the SMSF specific software programs do not allocate income or losses on an hourly basis and they do not cater for a part-day segregated period,” she explained.
“Thus, the systems will treat the fund as being in pension phase for the entire year and no actuarial certificate is required.”
However, to remove any doubt, if there was income earned on the day of the contribution, Ms Redman said she would recommend holding the contribution in a sub-account, separate from all other assets during its period in accumulation phase.
“In contrast, if no income is earned on the day of the contribution, both the practical and technical approaches would result in the same outcome. There is no need to obtain an actuarial certificate as there is no income to apply the certificate to,” she said.
