Claiming ECPI
ECPI Changes
As per the ATO website “From 1 July 2017, funds won't be able to claim ECPI for the earnings from assets supporting a Transition to Retirement Income Stream (TRIS). These earnings will be taxed at 15%. This will apply to all TRIS regardless of the date the TRIS commenced.
You can claim the tax exemption in your SMSF annual return once your SMSF begins paying 'super income stream benefits' (commonly referred to as pensions). However, your SMSF is not automatically entitled to the exemption. To claim the exemption in the SMSF annual return, there are steps you must take prior to starting payment of the super income stream benefit, such as ensuring all the SMSF’s assets are re-valued to their current market value.”
Impact on Segregation
The ATO has stated that any period where a SMSF is solely supporting pensions liabilities it is required by law to treat that period as segregated, which means that one fund may end up with a number of different periods of ECPI calculation under both the segregated and unsegregated method within the same year. This has caused a lot of headaches for administrators, financial planners and accountants who now have much heavier administration requirements.
The ATO has its own requirements to meet and takes a strict legal standpoint on these matters which differ greatly from the current actuarial practice, where SMSF advisors and administrators usually treat a fund as being unsegregated for the end of financial year. The reason superannuation professionals take this angle is because it makes a convoluted, time consuming job much simpler and more cost effective.
This stark contrast between the law and practicality can conflict and result in unintended consequences for actuaries who are simply trying to do their job. So as always, they are encouraged to stay familiarised with changes and research efficient methods that still comply with the law.
Get in touch with the professionals at Super Audits today for all your SMSF auditing needs.