From the 2017-18 income year onwards, SMSFs that are 100 per cent in pension, for any period of time, will be required to use the segregated method to claim ECPI, according to an update from actuarial certificate provider Accurium yesterday.
That is, where a fund is wholly in pension phase it will be ‘deemed’ to be segregated.
“Funds will have to use more complex methods for calculating tax exemptions. This will require significant changes to SMSF administrators’ systems and processes. Tens of thousands of funds are likely to impacted each year,” Accurium’s general manager Doug McBirnie said about the issue in mid-June.
There is good news though — Accurium said the ATO has recognised the need for a transitionary period, and will not be applying compliance resources to check ECPI calculations for 2016-17 and earlier returns where SMSFs have used the proportionate method for all income. This will be the case even where there were periods where the fund was 100 per cent in pension.
“This means that the industry can continue with its current approach for all SMSFs completing their 2016-17 annual returns and we now have some time to make the necessary changes to systems and software to deal with the new methodology that will be required for 2017-18 onwards,” Accurium said.
“It does mean that SMSF practitioners need to be aware that the decisions they and their clients are making now for the 2017-18 year will be treated under the new rules.
“It is worth noting that this concession from the ATO does not extend to which method funds need to use for CGT relief purposes. Where a fund is solely in pension phase on 9 November 2016 it must still use the segregated approach for claiming the CGT relief, even if the trustee opts to use the proportionate method for ECPI purposes.”