Matthew Richardson, SMSF manager for Accurrium, said the rule regarding disregarded small fund assets came into force in 2017 and can impact the ability to claim exempt current pension income (ECPI).
“[The test] is essentially an annual test the fund does, which determines whether it is eligible to have segregation during the year,” Richardson said.
“This test doesn’t tell you if you have segregation, it just says the fund was allowed to have it. A fund may not have any during the year, so this test may not be applicable for those. It won’t matter whether a fund passes this test, but it is still something you need to look at for the funds where it is applicable, and you need to make sure you are doing it correctly.”
Richardson said the test is done on 30 June each year or based on the prior 30 June details and one of the first things that must be done is to ensure there is a member in retirement phase with a total super balance of more than $1.6 million.
“The member just has to be in retirement phase, not specifically in the SMSF, but just have a retirement phase interest in any fund,” Richardson said.
“Secondly, it’s important to note that the $1.6 million is specifically set in the legislation, even though it came in at the same time as the transfer balance cap, which was $1.6 million. That general transfer balance cap has, of course, been indexed, and is up to $1.9 million at the moment, but the $1.6 million for the disregarded small fund assets hasn’t changed.”
He added the $1.6 million is used whether conducting the test for the 2024 year or the 2018 financial year.
“If there is no member in retirement phase at any point during the year, then there’s not really any point in doing this test, because the fund is not claiming any exempt income,” he said.
“If a fund has no retirement phase pension, then it’s all non-retirement phase and would just be fully taxable for the year.”
Richardson said the final part of that test is that the SMSF is not solely in retirement phase for the entire year, which can depend on the financial year being considered.
“For 2018 up to 2021, that part of the test for disregarded small fund assets was not there. For those years you would have some funds in the situation where they were solely in a retirement phase for the full year, so 100 per cent tax exempt, but they still met these conditions for disregarded small fund assets and had to get an actuarial certificate,” he said.
“Eventually in 2022, we saw that extra part brought in to say that if the fund is solely in retirement phase for the full year, you don’t have disregarded small fund assets and it doesn’t matter if you meet those other conditions.”
