Element missing from ECPI bill

ECPI legislation

The Treasury bill dealing with how exempt current pension income is to be calculated omitted an important element that had been included in the draft version of the legislation.

The Treasury Laws Amendment (2021 Measures No 6) Bill 2021 tabled last week to address the rules governing the exempt current pension income (ECPI) calculation procedures left out a critical element that had previously been included in the draft legislation regarding the matter, a technical specialist has observed.

The bill did contain sections abolishing the need for SMSFs and small Australian Prudential Regulation Authority funds to obtain an actuarial certificate to determine ECPI if these funds are entirely in retirement phase for the whole of an income year, regardless of whether they have disregarded small fund assets, Accurium head of education Mark Ellem noted.

However, Ellem pointed out the bill is missing the provisions contained in the draft legislation allowing SMSF trustees a choice as to which ECPI calculation method they use when the fund has member interests in both accumulation and pension phases for a portion of the financial year, and is entirely in retirement phase for another part of the income year.

“It surprised me that the draft legislation that Treasury released came out dealing with both measures and then the bill put before parliament, which covered five or six different items, only included that one item,” he told selfmanagedsuper.

“I’m thinking have they paid attention to the submissions that have come through from a variety of industry bodies alluding to the potential increase in complexity that the draft legislation is potentially providing.”

To this end, he referred to the submission from the SMSF Association, which stated: “Allowing trustees now to choose their preferred calculation method will require further changes to software and accounting and administration processes. It will create further complexity and cost as software systems and administration processes will need to be able to support both calculation methods, including tax optimisation tools to enable trustees and practitioners to identity the most tax-efficient calculation method given the specific circumstances of the fund.”

He noted: “We’re not opposed to providing choice and we’re not opposed to making procedures simpler and less complex that will reduce the cost burden on SMSF trustees. It’s just that when you read the draft legislation, it’s not necessarily going to achieve that outcome.

“When all the submissions pointed that out, maybe Treasury listened and is saying maybe we need to reconsider that and maybe that’s what it is doing and why these provisions were not submitted at the same time.

“Then again it could be a completely different reason why it has separated the two and why it’s being lodged separately. The ECPI choice rules might be introduced in a separate bill.”

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