ATO provides certainty on segregation | Accurium

From the 2017-18 income year onwards, SMSFs that are 100% in pension, for any period of time, will be required to use the segregated method to claim exempt current pension income (ECPI).

The ATO has today confirmed that SMSFs will be required to use the segregated method to claim ECPI on income earned in periods when the fund was solely supporting retirement phase income streams. That is, where a fund is wholly in pension phase it will be ‘deemed’ to be segregated. We have highlighted in a previous article ( how this ATO interpretation is contrary to current industry practice and will increase the complexity of administration for the tens of thousands of affected funds.

The good news, however, is that the ATO has recognised the need for a transitionary period before requiring SMSFs to comply. They have confirmed that they will not be applying compliance resources to check ECPI calculations for 2016-17 and earlier returns where SMSFs have used the proportionate method for all income - even where there were periods where the fund was 100% in pension.

This means that the industry can continue with its current approach for all SMSFs completing their 2016-17 annual returns and we now have some time to make the necessary changes to systems and software to deal with the new methodology that will be required for 2017-18 onwards. It does mean that SMSF practitioners need to be aware that the decisions they and their clients are making now for the 2017-18 year will be treated under the new rules.

It is worth noting that this concession from the ATO does not extend to which method funds need to use for CGT relief purposes. Where a fund is solely in pension phase on 9 November 2016 it must still use the segregated approach for claiming the CGT relief, even if the trustee opts to use the proportionate method for ECPI purposes.

We understand that the ATO will be confirming its interpretation and the concession on its website in the coming days.

Accurium will now work closely with our software platform partners to ensure the additional administrative complexities for affected funds are kept to a minimum. In the meantime, please give us a call if you are doing 2017-18 returns for funds that are winding up which you think may be affected.

As ever, the team are more than happy to answer any questions you might have. Just give us a call on 1800 203 123.

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.