One area of concern is the use of the segregated method for claiming ECPI, Accurium’s consulting actuary Doug McBirnie told SMSF Adviser.
The segregated method allows funds to claim ECPI on assets that are solely supporting pensions, he noted, provided that their value does not exceed the pension account balance.
“If using the segregated method, there is no requirement for an actuarial certificate. All of the income earned on the segregated pension assets is exempt from tax and any capital gains or losses are disregarded,” Mr McBirnie said.
The ATO has now clarified that this method can only be used for the entire financial year, Mr McBirnie said.
“The ATO is concerned that many funds are using the segregated method where pensions are started part-way through a financial year. Assets can only be segregated current pension assets when they are segregated for the entire financial year. Otherwise, the unsegregated method must be used and an actuarial certificate obtained in order to claim ECPI,” he said.
The ATO has also reiterated its view that declaring ECPI is not something trustees can opt out of.
“Many SMSF practitioners have been of the opinion that, where the cost of obtaining an actuarial certificate and claiming ECPI is likely to outweigh the tax saving, trustees can opt to pay the tax instead,” Mr McBirnie said.
“The ATO has now clarified that this is not an option. Where a fund has pension accounts at any point during a financial year it must report any associated ECPI in the annual return. Where funds are using the unsegregated method the trustee must obtain an actuarial certificate prior to lodgement.”