ECPI proposals predicted to see return of old regime

One of the changes, Accurium general manager Doug McBirnie explained, is to fix an anomaly where some funds that are solely in retirement phase for the entire income year may still require an actuarial certificate.

The second budget proposal affecting ECPI was around the definition of what constitutes a segregated current pension asset, he noted.

“While they will reduce red tape in the longer term, in the short term that means more change and disruption for SMSF practitioners,” Mr McBirnie said.

The second proposal, he said, will simplify the process of calculating ECPI for around 15 per cent of SMSFs who use the proportionate method but also have periods where they must claim ECPI using the segregated method.

The government has now proposed to allow trustees with both accumulation and retirement phase interests during an income year to choose their method of calculating ECPI, he explained.

“While we are yet to see details of how this will be enacted, we don’t believe that this choice will be available after the event, as that will open up the opportunity for trustees to game the system by choosing the most tax-effective option each year,” he said.

“The budget papers note that the government envisions no impact to tax revenues from these measures.”

Mr McBirnie said he expects that the legislation will be amended to allow the industry to move back to the pre-1 July 2017 regime.

“In order to use the segregated method, trustees would need to elect in advance which assets they wish to segregate to which retirement phase interests,” he said.

“If a trustee hasn’t made and documented an election to segregate in advance, the fund would default to using the proportionate method.”

This would tie in nicely with the first reform, he said, as funds that are solely in retirement phase for the entire income year, but didn’t make an election to segregate, are expected to be able to use the proportionate method without the need to obtain an actuarial certificate.

“Enactment of the budget measures will be welcomed by the SMSF industry as they will remove unnecessary red tape and simplify the process of calculating and claiming ECPI going forward. The changes are due to commence from 1 July 2020, meaning that the current procedures will be in place for three years before the changes come into force,” he noted.

“For SMSF practitioners, it will also mean getting to grips with another round of changes in two years’ time. In the meantime, the industry awaits consultation on draft legislation.”