The Actuaries Institute has warned that tens of thousands of self managed super funds (SMSFs) could be at risk of incorrectly claiming exempt current pension income (ECPI) under the ATO's approach to segregated current pension assets.
Essentially, the ATO's view is that funds that are "fully in pension phase" are deemed to have "segregated current pension assets", and cannot use the proportionate method for all of its assets for the whole of that tax year to determine its "exempt current pension income" (ECPI).
The Actuaries Institute says the ATO's approach is at odds with the long-standing industry practice that, unless a fund is solely in pension phase for an entire income year, the trustee can elect to use either the segregated method or the proportionate method, or both. Except where a fund is solely in pension phase for the whole income year, the Institute says the segregated method is more administratively complex and requires multiple sets of accounts. Given the uncertainty that this is causing, the Institute has also called for the ATO to clarify that it will not require funds to comply with this view for the 2017 and later income years. If the ATO believes that there is no alternative interpretation than its current view, the Institute suggests that the law be amended.