An Actuarial certificate is a statement provided by a qualified actuary to confirm the proportion of an self managed superannuation fund’s (SMSF) income that should be exempt from income tax. The tax treatment of a fund depends on whether it is in accumulation or pension phase, or a combination of both.
The need to obtain actuarial certificates where an SMSF converts to pension phase has been unclear until now, but the Tax Office has recently provided clarity.
According to the Tax Office, the SMSF does not need an actuarial certificate in the income year where all the members have converted all of their balances from accumulation to pension phase. (Taxation Determination 2014/7 has been amended to reflect this position.)
It is important to note this only applies if:
- no further contributions or rollovers are made;
- there are no reserves; and
- only account-based, allocated or market linked pensions are being provided.
This position is contrary to long-standing industry practice that an actuarial certificate would be required where an SMSF changed from full accumulation phase to full pension phase part way through an income year.
Further, the Tax Office has confirmed that there is no requirement to obtain an actuarial certificate if the trustee does not intend to claim any exempt current pension income (ECPI) on their SMSF annual return. This may be the case where the cost of obtaining the actuarial certificate outweighs the value of the tax exemption.
The Tax Office’s previous view on this was that declaring ECPI was not optional and an SMSF would not be exempt from an actuarial certificate.
Without doubt, the practical approach adopted by the Tax Office in relation to both matters, which would reduce additional compliance burdens on trustees and advisers, is welcomed.