Speaking at the Class Connect Conference, Heffron SMSF Solutions head of customer Meg Heffron said the ATO and the Actuaries Institute have been at odds over whether an SMSF that was fully in pension phase for any part of the year can use the unsegregated method of all of its assets for the whole of that tax year.
Ms Heffron said the common practice for funds that have both pension and accumulation interests during the year, and where there is only a brief period where they are solely in pension phase, is to use the unsegregated method for all income earned in the year.
“We would normally just get an actuarial certificate for the whole year and apply it to all of the year’s income, but the ATO’s view is that you can’t do that,” said Ms Heffron.
Speaking to SMSF Adviser previously, Accurium general manager Doug McBirnie said the ATO’s interpretation will mean that funds have to use more complex methods for calculating tax exemptions.
This will require significant changes to SMSF administrators’ systems and processes. Tens of thousands of funds are likely to impacted each year, Mr McBirnie said.
Given the fact it has always been common practice to use the unsegregated method for calculating ECPI in these situations, Ms Heffron said the ATO has now confirmed it will allow professionals to continue using this method for at least the 2016/17 annual returns.
The Actuaries Institute is trying to push them to at least 2017/18 as well, she said.
“So in our practice that is exactly what we’ll be doing. We’re getting a percentage for the whole year, and applying it to all of the income,” she said.
“In the meantime, in my lobbying role, we’re trying to push either the ATO to change their mind, or Treasury to change the law.”