Here is the ATO announcement that industry practice needs to change from 2017-18. Many funds will find this view produces a better outcome in 2016-17.
CONFIRMATION OF ATO VIEW: SMSFs AND TAX-EXEMPTION ON PENSION ASSETS
Self-managed super funds (SMSFs) will be required to use the segregated method to claim exempt current pension income (ECPI) on income earned in periods when the fund was solely supporting retirement phase income streams. Where a fund is wholly in pension phase for all or part of any income year, our position is that all of the fund’s assets are segregated current pension assets. An actuarial certificate will not be required to support the SMSF trustee’s calculation of ECPI for the relevant period.
For any portion of an income year that an SMSF is not wholly in pension phase, for example its members have a mix of pension phase and accumulation phase interests for part of the year, and the SMSF’s assets are not segregated, the SMSF trustee will be required to use the proportionate method to determine its ECPI for that period. They will also be required to obtain an actuarial certificate if they wish to claim ECPI in relation to income received by the fund during that part of the income year.
We acknowledge that there may be some industry practices that may not be in accordance with the ATO view of the law regarding the calculation of ECPI. Therefore, we have made an administrative concession with respect to our compliance approach for the 2016-17 year and prior. In relevant instances, SMSF trustees will not face compliance action for prior years’ ECPI calculations where those calculations were based upon an industry practice that is not consistent with our view of the law.
NetActuary is looking forward to again providing actuarial certificates from the end of this financial year. Our new processing system will be based solely on the above requirement.