Financial advisers and their SMSF clients need to consider the new rules pertaining to disregarded small fund assets when assessing whether an actuarial certificate will be needed to claim exempt current pension income (ECPI), an industry technical expert has said.
Speaking at last week’s Chartered Accountants Australia and New Zealand National SMSF Conference 2018 in Melbourne, Accurium SMSF technical services manager Melanie Dunn warned there are two main situations advisers and trustees needed to account for when considering the disregarded small fund asset rules.
The first set of circumstances is when a fund member has a pension account in the current financial year and reaches a certain level with their total super balance in the previous financial year.
“You need to look at 30 June of the previous year, so for our current year we’re looking at 30 June 2017 for the 2017/18 year, and see whether any member of the SMSF had a retirement-phase account anywhere, it doesn’t have to be in the SMSF, and they have a total super balance of at least $1.6 million,” Dunn said.
“[If this is the case] then that fund for that year will have disregarded small fund assets and cannot use the segregated method for ECPI.
“And this test needs to be done every year, every 30 June, for the SMSF to determine how the fund must claim ECPI in the following financial year.”
The other situation where disregarded small fund assets need to be considered is when a fund solely in pension phase has its total super balance grow beyond $1.6 million.
“If you have a situation where a fund legitimately moves say $1.4 million into pension phase, or retirement phase, 100 per cent tax exempt [using] the segregated method, if that balance grows over time above $1.6 million, then in the following financial year that fund will have disregarded small fund assets,” Dunn said.
“It’s still 100 per cent tax exempt, solely in retirement phase, but you can’t use the segregated asset method [for ECPI]. On the [fund’s] tax return the ATO will be looking for you to tick the unsegregated method box and that you’ve got an actuarial certificate to claim that 100 per cent exemption.”