The timing of certain SMSF transactions can be critical when looking to maximise the amount of exempt current pension income (ECPI) the fund is claiming when using the proportionate method, a technical expert has said.
According to Accurium SMSF technical manager Melanie Dunn, the timing of transactions becomes an important factor with this method of ECPI calculation due to the formula used to derive the proportion applicable. This relevant equation divides the average value of retirement-phase liabilities by the average value of superannuation liabilities.
More specifically, the averages included in the calculation are based on a daily weighted average, which is the element that brings the timing of transactions to the fore, Dunn said.
“To maximise the ECPI for a fund using the proportionate method, [we need to] maximise the numerator and minimise the denominator. So we want more in retirement phase on average and we want less in non-retirement phase on average,” she said during an Accurium technical webinar held today.
“To do this we can think about the timing of our transactions. So if we’re taking pension payments or lump sums from retirement phase, then if we take those as late in the year as possible, or if we’re doing pension commencements, making those as early in the year as possible, all other things [being] equal this is going to increase our ECPI proportion.”
A similar principal should be applied to actions such as making accumulation account withdrawals, she suggested.
“{We should] do those as early as possible to reduce out accumulation balance on average,” she said.
“And if we are making significant contributions, [we should] do those as late in the year as possible again to minimise our accumulation balance on average.
“So they’re just some things we can think about in terms of timing.”
