There is no definitive answer as to whether an SMSF member should use an actuarial certificate across a financial year or the segregated method to calculate exempt current pension income (ECPI), but the timing of actions can often highlight which is the best option, a technical expert has noted.
Heffron SMSF specialist Sean Johnston said the key factors to consider in making this decision were how large the actuarial certificate percentage would be and in what part of the year did any income fall.
“If you have a very large, lumpy asset sale with a massive capital gain in the first half of the year when you are not in pension phase, then move into pension phase later in the year, it might be beneficial to get an actuarial certificate for the whole year so you get a portion of exempt income applying to gain in the first half of the year,” Johnston said during a recent online presentation.
“Similarly, if you have something that [takes place] entirely after you have moved into pension phase, you might get a better result from using the segregated method.
“It depends on where your income falls, and obviously I am talking here mostly about capital gains, because that is the big one to consider.”
He added that where an SMSF member does not have any have large capital gains during the year, but may still receive income, the timing of its receipt was still an important consideration.
“My experience is that most income tends to fall towards the back half of the financial year because you start to get unit trust distributions coming out around 30 June,” he said.
“There is a lot of dividend reporting there and that kind of thing usually lends itself to having more taxable income at the back end of the year.
“So if you are segregating part way through a year because you are moving everybody into the pension phase, you might be better off if you get a roughly a 50/50 outcome, but again, it is going to be largely dependent on what that actuarial certificate percentage is across the year.”
