ECPI, Regulation

No ECPI default calculation method

draft legislation ECPI

A default option does not exist in the draft legislation allowing an ECPI calculation method choice when an SMSF has periods during a financial year when it is wholly in pension phase, as well as others when it is not.

A technical specialist has alerted SMSF advisers and trustees to the fact a choice as to the method used to calculate exempt current pension income (ECPI) must be made under the draft legislation introducing changes to this aspect of income streams announced in the 2019 federal budget.

The ECPI draft legislation in question will allow SMSF trustees to choose to apply the proportionate method to the entire income year when the fund has periods in that year when it is wholly in pension phase and others where a pension account and an accumulation interest exist.

“There appears to be no default position, so a choice has to be made whether the asset is to be or not to be treated as a segregated current pension asset. There is no default position saying ‘if the asset is [held] during a deemed segregated period, it is a segregated current pension asset unless the trustee makes a choice for it not to be treated as a segregated current pension asset’,” Accurium head of education Mark Ellem said during a TechHub webinar today.

Ellem also pointed out the choice of ECPI calculation method applies to each asset, not a particular time period, and the potential complexity involved with this approach.

He drew on the experience of the sector when capital gains tax asset cost base reset rules were introduced in conjunction with the implementation of the transfer balance cap as an example of how the process might work.

“[Back then when looking at] an asset, we know that we had to get down to the tax parcel level,” he noted.

“[It meant] you could have shares in a company, but you might have multiple tax parcels that make up [the fund’s total purchase of those shares executed] at different times.

“So similarly here it could be that we’re making choices right down to the tax parcel level.”

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