Blog

ATO changes course on ECPI | Accurium

Following lobbying from the industry, the ATO have updated their technical guidance on claiming exempt current pension income (ECPI)

The change in approach is a great result for SMSF practitioners and their clients and follows industry consultation on the issue.

As we noted in our blog back in May 2015, the ATO raised concerns in a number of outlets earlier this year about how SMSFs were claiming ECPI. They also updated the technical guidance on their website highlighting two key points where they felt trustees were getting it wrong:

  1. Claiming ECPI is not optional. That is, where a fund has pension assets during the year then it must claim any associated earnings as ECPI, even where the amount of ECPI is small enough that it may not be worthwhile for the fund.
  2. Unless pensions are in place for the entire financial year, trustees will need an actuarial certificate to claim ECPI using the segregated method.

Both of these points differ from Accurium’s interpretation of the legislation as well as long standing accepted practice in the SMSF industry. We also received an influx of queries from clients concerned about how to apply the new guidance. In light of this, Accurium made representations to the ATO to support the approach currently being used.

Following a consultation process with a number of key actuaries in the SMSF industry (including Accurium’s Doug McBirnie), the ATO have now accepted that the industry view on these issues does not contravene the legislation.

The ATO have revised their technical guidance on ECPI again and will soon update their website to reflect this change. Importantly, they have confirmed that:

  1. Where it is not in the trustees’ interests to obtain an actuarial certificate and claim ECPI, they are not obliged to do so. For example, where the cost of obtaining a certificate outweighs the tax saving, trustees can opt not to and just pay the tax instead.
  2. Where trustees have segregated assets solely for the purposes of paying account-based type pensions (including allocated and market-linked pensions) they do not need to obtain an actuarial certificate for the earnings on those assets to be exempt from tax. Trustees can use the segregated method to claim ECPI without an actuarial certificate even when those pensions commence or cease during the year.

This is a good outcome. The ATO have removed the confusion around their earlier statements and confirmed that they are happy with standard industry practice. It also reduces red tape by removing the need for an actuarial certificate where it does not provide a benefit to the trustees.

Should you have any questions over when an actuarial certificate is required, or which method to use to claim ECPI, please contact our SMSF Services team and they will be happy to help.

 

Tags: Exempt current pension income ECPI, ATO

The information in this document is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances.  While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.