'No apparent benefit' in ATO position on ECPI
The ATO's upcoming clarification of an issue related to exempt current pension income, which many believe is out of step with industry practice, looks as though it is increasing the burden on SMSF professionals and administrators for "no apparent reason," according to the head of one actuarial certificate provider.
From the 2017-18 income year onwards, SMSFs that are 100 per cent in pension, for any period of time, will be required to use the segregated method to claim ECPI. As reported on Monday, SMSF Adviser understands this will be publicly confirmed by the ATO shortly.
In line with comments from Accurium, director at Act2 Solutions, Andy O’Meagher, said this represents a change to current industry practice.
“The amount of income tax being collected will change insignificantly, if at all, the impact on trustees is negligible, if at all, the additional burden on administrators and service professionals will increase dramatically for no apparent reason,” Mr O’Meagher told SMSF Adviser.
“This will essentially increase the cost of compliance to SMSFs for no improvement in returns for either the trustees or the government,” he said.
Conversely, Mark Ellem from the SuperConcepts technical team, believes this clarification and position is a good move from the ATO.
“I do not agree with the premise that the adoption of the ATO’s approach will create complexity for ‘tens of thousands of SMSFs’,” Mr Ellem told SMSF Adviser.
“Most pensions are commenced on 1 July of each financial year, so it will only be an issue where a fund changes from segregated to unsegregated or vice versa during the year. You also have to take into account that there will be a number of SMSFs that will not be allowed to use the segregated method to claim ECPI, so for them, this is a non-issue,” he said.
Mr Ellem has reminded SMSF professionals on several occasions that the “industry practice” is not, in fact, the ATO’s view of the law.
In line with that, an ATO spokesperson told SMSF Adviser that while the tax office appreciates that some industry practices can deviate from its view, it has to administer the laws as they are stated.
“The ATO cannot advise SMSF trustees or industry to continue to act in accordance with any practices that are not consistent with the operation of the law,” the spokesperson said.
The spokesperson reminded SMSF professionals that the ATO has made an administrative concession in this instance, and from a practical compliance perspective will not be seeking to apply compliance resources to review applicable past ECPI calculations for the 2016-17 and prior years.
“That is, in applicable circumstances, SMSF trustees will not face compliance action for prior years’ ECPI calculations based upon an industry practice that is not consistent with the ATO’s view of the law,” the spokesperson said.