Treasury proposes providing an exemption to the requirement to obtain an actuary’s certificate for funds using the proportionate method, that have both pension and accumulation interests, when calculating the exempt current pension and accumulation interests.
Treasury released an exposure draft of Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017 at the end of last year and undertook consultation on the proposed exemption.
Responding to the consultation, the SMSF Association said it is concerned with the policy change because it will be “detrimental to the integrity of the superannuation system and will result in less efficient administration of superannuation funds”.
The SMSF Association submission stated that removing the need for an actuarial certificate will eradicate the independence and integrity achieved from using an external source to calculate a fund’s exempt portion.
“Under the current laws, the requirement to seek an actuarial certificate ensures than an independent professional determines the tax-exempt portion of a superannuation fund’s assets. This ensures that funds are not exploiting the ECPI rules,” it said.
“This is especially important given the sizeable population claiming the ECPI deduction and the significant revenue forgone through the ECPI deduction.”
The move away from actuarial certificates would mean accountants would be required to either calculate the deduction on behalf of trustees or review the trustee’s calculation, the SMSF Association said.
“Further, increased regulatory costs for the ATO may arise as they seek to scrutinise [the] SMSF trustee’s ECPI deduction calculations,” it said.
“In turn, this could lead to an increase in the SMSF levy to fund the ATO’s regulatory activities which would result in the cost being transferred back to SMSFs.”
The SMSF Independent Superannuation Funds Association (SISFA) submission agreed that the exemption seems counter-intuitive to the government’s broader anti-avoidance measures for minimising tax leakage.
“Significant risks to the superannuation system could arise as a result of this proposed policy change. The largely self-regulated SMSF sector is by far the largest sector by asset value in the retirement phase with ECPI claims totalling nearly $19 billion in 2014,” SISFA said.
“This dilution of expertise could present opportunities for funds to manipulate the ECPI provisions to increase the size of ECPI deductions, causing revenue leakage for government.”
SISFA said it is concerned that the change in rules could propagate tax schemes with “the intent of artificially inflating ECPI deductions to reduce the tax on superannuation fund income”.
The Actuaries Institute submission said while the largest SMSF administrators in the sector do have the capacity to build the expertise and judgement in-house, the smaller operators may not.
“It is foreseeable that a significant number of ECPI calculations for unsegregated SMSFs will be prepared and audited by individuals both of whom have very limited expertise in this area and are unlikely to recognise circumstances in which a more sophisticated calculation methodology is required,” its submission said.
“The government can attempt to address this risk by having the ATO issue very detailed guidance and increase its audit activity, both of which will involve additional costs.”
Amazing how quickly vested interests leap in to protect their right to grab some of my hard-earned retirement savings every year providing “services” I neither want nor need (except for the irrational regulatory requirement). It would be nice if, just once, common sense prevailed, but I doubt whether Canberra has the guts to stand between the festering carcass of my superannuation savings and the ever circling vultures.
all bullshit
Maybe so, Anonymous, but the certificate provides another layer of security for the advisor/trustee. When the ATO comes knocking and asks how ECPI was calculated, I’d much rather have independent certification to hang my hat on………certainly much better than saying “don’t know, the software spat out the number and we used it.”
Given that the ATO have been threatening increased compliance activity around this particular area, I’d say it’s better to be safe than sorry. Particularly for the sake of a $150 certificate.
Absolutely agree with you, we are being forced to pay people for something we could do ourselves. An industry providing certificates will continue to flourish with legislation helping them to do so. The ATO and political idea appears to be making the operating of an SMSF too costly and onorous so that SMSFS will disappear or morph into something out of the Trustees control
seriously?…..I’m guessing that a good proportion of actuary certificates are driven out of SMSF accounting software anyway, with the balance driven out of a form prepared by the accountant…so any notion of “an independent review by an actuary” or “ensuring that there is no exploit” is just a nonsense as all the opportunities to exploit (if any) occur before the actuary gets the order form……the comments from our unnamed learned friends above just show how far from the coal face they are
Seems like the professional body has little faith that there members will do the right thing or that they are capable.
Software packages have been calculating this for years and I always found the actuary an unnecessary compliance cost
When John Howard changed the rules of super, the bureaucrats forgot that they had to remove the actuary certificate from the legislation. So a new industry came into being. Most certificates are prepared over the internet. They are never seen by an actuary. The computer program is an arithmetic calculation and not an actuarial one as there is not consideration of life expectancy. The calculation is dependent on the accuracy of the numbers inputted which in my experience are done by the office junior. The actual mathematical calculation is also disputable.
The certificate is a complete waste of time and money and is giving people a false sense of security about the calculation of the exempt pension income.