The Beginners Guide to Actuarial Certificates
Are you confused about what an actuarial certificate is and how it is calculated? Let us skip the technical lingo and break it down for you as simply as we can!
Before we dive in, and to save you the headache, we have included a glossary at the end of this article of any technical terms we mention that you are unsure of. Furthermore, this article is only going to be relevant if your SMSF is paying Account Based pensions1. If your SMSF is paying the old Defined Benefit Pensions2, then give us a call instead to have a chat.
So, what is an actuarial certificate?
If you have an SMSF with a mix of non-retirement phase3 and retirement phase4 monies and would like to claim a portion of your income as tax free in your SMSF annual return (who doesn’t hey?!) then by law, you need an actuarial certificate. That is, unless you have all retirement phase assets entirely separate from non-retirement phase assets, which is a lot of effort and very rarely done.
An actuarial certificate is a document prepared by a certified Actuary5, where the Actuary calculates a percentage. This percentage will apply to your SMSFs’ assessable income6 for the given income year and help determine how much of your assessable income will be tax free. The technical lingo for tax free income in your SMSF annual return is referred to as ‘Exempt Current Pension Income’.
How is the actuary’s percentage calculated?
Ah great question! In the simplest terms we can make it, it is essentially:
Remember to check out our glossary at the end of this article if any of the terms in the formula above confuse you.
What affects the actuary’s percentage?
Another great question! Opening balances as well as the timing and amounts of pension commencements9, pension rollbacks10, contributions11, rollovers12, non-retirement phase withdrawals13 and pension withdrawals14, will all influence the actuary’s percentage.
The key thing to note with the actuary’s formula is that the higher the numerator in respect to the denominator, the higher the actuary percentage and the more money you can claim tax free. Therefore, the greater the amount of money you have in your retirement phase accounts for more days during a given financial year, the higher the actuary’s percentage will be.
Do I need an actuarial certificate?
Here at Act2 Solutions, we are all about making life easier for our clients. That’s why we have created a simple questionnaire you can complete to determine whether you require an actuarial certificate or not (you’re welcome!). You can check out our questionnaire ’Does my SMSF require an actuarial certificate?’ under TechSpot on our website.
Rebecca Oakes B.Bus, Adv Dip FP, SSATM
Head of Technical Services
The information in this document is provided by Act2 Solutions Pty Limited ABN (Act2 Solutions). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Act2 Solutions is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.