Billions of dollars in tax savings hinge on a single question every year: does this SMSF need an actuarial certificate? With more than 40% of all self-managed super funds (SMSFs) now claiming exempt current pension income (ECPI), and the total value of those claims exceeding $17 billion in 2022–23 alone, ECPI is highly valuable for many SMSFs in reducing the amount of tax payable each year.
Many practitioners are clear on whether a fund is eligible to claim ECPI, yet due to frequent changes to rules and requirements, whether an actuarial certificate is required to claim ECPI may be unclear.
This article explains what an actuarial certificate is, when it is and isn’t required, and why getting it right matters enormously for your clients.
What is an actuarial certificate?
An actuarial certificate is a document issued by a qualified actuary that certifies the proportion of an SMSF’s income that is exempt from income tax. This proportion is applied to the fund’s relevant assessable income to determine an amount of exempt current pension income, or ECPI. ECPI represents one of the most valuable tax concessions available to superannuation fund members: once a member’s super savings are supporting a retirement phase income stream, the investment income earned on those assets is generally tax-free.
In practical terms, the certificate tells you what percentage of the fund’s income and capital gains is exempt. Without it the fund cannot correctly calculate its ECPI claim and may either overpay tax or run the risk of an incorrect return.
When is an actuarial certificate required?
Not every SMSF eligible to claim ECPI needs an actuarial certificate, but many do. The rules depend on the fund’s membership and interests during the income year.
An SMSF does not need an actuarial certificate where, throughout the entire income year, all of the fund’s assets are supporting retirement phase income streams. In that scenario the fund is 100% in retirement phase and entirely tax exempt under the segregated method, no actuarial certificate is needed
An SMSF does need an actuarial certificate where, at any point during the income year, the fund has assets that are not wholly supporting retirement-phase income streams. ECPI is claimed using the proportionate method. This commonly arises where:
- one or more members are still in accumulation phase (i.e. have not commenced a pension, or have a partial accumulation balance)
- a member commences or stops a pension during the year
- a transition-to-retirement income stream (TRIS) is in place that has not yet met a nil-cashing restriction condition of release
- the fund receives contributions or rollovers during the year while other members are in pension phase
In these situations, the fund is not wholly in retirement phase for the full year, and the actuary must calculate the proportion of income that qualifies for the exemption.
To help practitioners navigate these rules quickly, Accurium has developed a free decision flowchart (one of the most popular resources on our website) that walks through the key questions step by step for when an actuarial certificate is required.
The numbers: ECPI and actuarial certificates in Australia
Analysis of the Australian Taxation Office’s Taxation Statistics 2022–23 (Table 2: Funds) reveals the scale of the ECPI opportunity and how many funds have an actuarial certificate requirement.
These numbers reflect the reality that, for a large proportion of SMSFs, the fund is not wholly in retirement phase throughout the year. Whenever there is a mix of accumulation and retirement phase assets, even temporarily, an actuarial certificate is the mechanism by which the fund calculates and supports its ECPI claim.
The numbers are not static, the SMSF sector continues to grow and the wave of baby boomers transitioning from accumulation to retirement phase is far from over. Each year, thousands of members begin their first pension, meaning their fund moves from a position of not claiming ECPI and not needing a certificate, to one where it can and does.
Why getting it right matters
Overclaiming ECPI exposes the trustee to amended assessments and potential penalties. Underclaiming means the fund pays more tax than it needs to, eroding members’ retirement savings unnecessarily.
It is true the rules can seem complex, especially where funds transition in and out of being solely in retirement phase, or if they have segregated investments. However, for accountants and financial advisers, understanding ECPI and when a certificate is required is critical to optimising the tax position of the fund.
The SMSF annual return requires you to confirm that an actuarial certificate has been obtained to certify the fund’s ECPI claim for those funds using the proportionate method. With the SMSF annual return deadline approaching on 15 May, now is the time to ensure you’ve obtained an actuarial certificate to claim ECPI.
Actuarial certificates from Accurium
Accurium is Australia’s leading providers of SMSF actuarial certificates. Our certificates are prepared by our experienced team and signing actuaries. We offer:
- Fast turnaround with most certificates issued within minutes
- Simple online application + integration with SMSF administration platforms
- Complimentary actuarial certificate amendments
- Complimentary expert ECPI support from our SMSF team
- Complimentary 10 hours of SMSF CPD for all staff
Find out more and order a certificate at accurium.com.au/actuarial-certificates.