ATO / Pensions / Podcasts / Professionals / SMSF

ATO’s about face a positive outcome for ECPI


Earlier this year, we saw the ATO appear to ‘move the goal posts’ when it came to applying exempt current pension income (ECPI) within a SMSF. This guidance provided by the Assistant Commissioner, stated two critical changes in calculating and reporting ECPI:

  • to be exempt from an actuarial certificate, you must use the segregated method for the entire income year.  Where a fund started a pension part way through the year, the trustee could not rely on the segregated method to calculate the fund’s tax exemption.  The ATO was of the view that this created a problem as some funds would be subject to compliance action as a result of not having obtained an actuarial certificate before lodgement of the SMSF annual return (in order to be entitled to claim ECPI); and
  • that the ability to declare ECPI is not ‘optional’ – that is, the income of an SMSF is either assessable or exempt.  The ATO indicated that a trustee could not re-characterise the income simply by not obtaining an actuarial certificate. Therefore, where a fund is using the unsegregated method, an actuarial certificate is required to determine the portion of the fund’s income considered as exempt income.

It would be fair to say that the view taken by the ATO was a surprise to many professionals within the industry.  Both of these issues raised by the ATO were in fact long-standing and accepted industry practices.  As a result of the concerns raised by industry, stakeholder consultation has recently occurred which has led to a positive outcome that the above issues do not contravene the law.

In the above podcast, I discuss this issue in more detail with Andy O’Meagher from Act2 Solutions, along with some important considerations when claiming an ECPI tax deduction within a SMSF.

You can also subscribe to the podcast on iTunes.




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