Overview

There have been significant changes made to the ATO interpretation for calculating ECPI in the 2017/2018 Financial year and later for where a fund deemed to be segregated (100% pension phase) as well as changes due to the Super Reforms. 

2016 - 2017 and prior financial years: 

A fund that was in 100% pension phase for part of an income year was required to obtain an actuarial certificate on the basis that the fund assets were unsegregated for the entire year. The fund was required to apply the actuarial percentage to the fund's income for the entire financial year.

2017 - 2018 and subsequent financial years: 

Where an SMSF's assets are unsegregated for part of an income year, the SMSF trustee will be required to obtain an actuarial certificate pertaining to that part of the income year if they wish to claim an ECPI deduction for income received during that period.

Summary

This means that if the assets of an SMSF are segregated for only part of an income year and you wish to claim ECPI for the remaining period of the year in which the assets of your SMSF are unsegregated, you will be required to obtain an actuarial certificate for the period your fund's assets are unsegregated.

The previous approach by the ATO and the industry was to either apply the Segregated or Unsegregated method for the entire year.

Example:

At 1st July, a fund has two members: 

• One in pension mode
• One in accumulation mode 

On 1 March the accumulation member converts from the accumulation phase to pension phase making the fund 100% pension phase for the remainder of the year.

2017 and prior financial years treatment

• Actuarial Certificate would be obtained
• Unsegregatedmethod using the Tax Exempt proportion determined by the Actuary for the entire financial year

2018 and subsequent financial years treatment

• Actuarial Certificate is obtained
• The unsegregated method using the Tax Exempt proportion determined by the Actuary is applied for the first 8 months
• For the period 01 March - 30 June the segregated method (100 Tax Exempt) is applied

Restrictions on using the Segregated Method

From 1 July 2017, a fund cannot have any assets classified as segregated at any time during a particular financial year if at the previous 30 June:

• any member had a total superannuation balance of more than $1.6 million

• any of those members with more than $1.6 million also had a retirement-phase pension from any fund (not necessarily this SMSF).

If a fund cannot be classified as segregated, it simply means it cannot claim its tax exemption on a segregated basis. The fund is still eligible for an exemption but under the Unsegregated method.