When the DSFA rule does not apply and the SMSF is not 100% in Retirement Phase at all times of the Financial Year, the ECPI Calculation Method to be used depends on the SMSF’s circumstances.
The following tables summarise the correct method to calculate ECPI depending on your SMSF’s circumstances and whether an Actuarial Certificate is required when the DSFA rule does not apply and the SMSF is not 100% in Retirement Phase at all times of the Financial Year.
From 1 July 2017 to 30 June 2021
Table 1: ECPI Calculation Method b/w 1 July 2017 - 30 June 2021 when DSFA rule does not apply
| Case Description |
ECPI Calculation Method |
Actuarial Certificate |
| The SMSF has only Retirement Phase Accounts in some periods and only Non-Retirement Phase Accounts in other periods (refer to example 1 for more information). |
Segregated Method. |
Not required.
- The SMSF income is 100% tax exempt for the periods when the SMSF has only Retirement Phase Accounts;
- The SMSF income is 100% taxable for periods when the SMSF has only Non-Retirement Phase Accounts.
|
| The SMSF has both Retirement Phase Accounts and Non-Retirement Phase Accounts at the same time throughout the Financial Year (refer to example 2 or more information). |
Proportionate Method for the entire Financial Year. |
Required.
The tax exempt percentage calculated by the Actuary is applied to the SMSF’s Total Income for the entire Financial Year.
|
| The SMSF has only Retirement Phase Accounts in some periods and both Retirement Phase Accounts and Non-Retirement Phase Accounts in some periods (refer to example 3 for more information). |
A combination of methods:
- Use the Segregated Method to calculate the ECPI for the periods when the SMSF is 100% in Retirement Phase;
- Use the Proportionate Method to calculate the ECPI for the other periods when the SMSF is not 100% in Retirement Phase.
|
Required.
- The SMSF income is 100% tax exempt and any realised capital gains/losses are disregarded for the periods when the SMSF is 100% in Retirement Phase;
- The tax exempt percentage calculated by the Actuary is applied to the income (incl. realised net capital gains) for periods when the SMSF is not 100% in Retirement Phase.
|
After 1 July 2021
The rules are slightly different due to some regulation changes post 1 July 2021. Where the SMSF is not required by law to use a particular calculation method, the Trustees can decide which ECPI method is appropriate for the SMSF in some circumstances.
Table 2: ECPI Calculation Method after 1 July 2021 when DSFA rule does not apply
| Case Description |
ECPI Calculation Method |
Actuarial Certificate |
| The SMSF has only Retirement Phase Accounts in some periods and only Non-Retirement Phase Accounts in other periods (refer to example 1 for more information). |
Segregated Method (No change). |
Not required.
- The SMSF income is 100% tax exempt for the periods when the SMSF has only Retirement Phase Accounts;
- The SMSF income is 100% taxable for periods when the SMSF has only Non-Retirement Phase Accounts.
|
| The SMSF has both Retirement Phase Accounts and Non-Retirement Phase Accounts at the same time throughout the Financial Year (refer to example 2 for more information). |
Proportionate Method for the entire Financial Year (No change). |
Required.
The tax exempt percentage calculated by the Actuary is applied to the SMSF’s Total Income for the entire Financial Year.
|
| The SMSF has only Retirement Phase Accounts in some periods and both Retirement Phase Accounts and Non-Retirement Phase Accounts in some periods (refer to example 3 for more information). |
Depends on the Trustee’s Choice
Option A: A combination of methods (same method as prior to 1 July 2021 – Refer to Table 1 above for the detailed information).
Option B: Proportionate Method for the entire Financial Year (only applicable after 1 July 2021 and the choice needs to be documented).
If the SMSF does not make a choice, only Option A can be used to calculate the ECPI.
|
Required.
If Option A - A combination of methods (no choice is made by the Trustees)
- The SMSF income is 100% tax exempt and any realised capital gains/losses are disregarded for the periods when the SMSF is 100% in Retirement Phase;
- The tax exempt percentage calculated by the Actuary is applied to the income (incl. realised net capital gains) for periods when the SMSF is not 100% in Retirement Phase.
If Option B - Proportionate Method only (choice is documented by the Trustees)
- The tax exempt percentage calculated by the Actuary is applied to the SMSF’s Total Income (incl. realised net capital gains) for the entire Financial Year.
|
Examples (all examples detailed below assume the DSFA rule does not apply)
Example 1: The SMSF has only Retirement Phase Accounts in some periods and only Non-Retirement Phase Accounts in other periods
Barney and Anne are the two members of the SMSF and they are both aged over 65. On 1 July, both members have not yet commenced pensions. On 1 August, both members decide to commence SABPs with their entire member balances. There are no further contributions or rollovers for the remainder of the Financial Year.
In this example, the SMSF only has Non-Retirement Phase Accounts during the period from 1 July to 31 July and only Retirement Phase Accounts from 1 August to 30 June.
The SMSF will not require an Actuarial Certificate.
- The SMSF income is 100% taxable for the period from 1 July to 31 July;
- The SMSF income is 100% tax exempt for the period from 1 August to 30 June.
Example 2: The SMSF has both Retirement Phase Accounts and Non-Retirement Phase Accounts at the same time throughout the Financial Year
Barney and Anne are the two members of the SMSF. Barney is aged over 65 while Anne is aged under 65 and not retired. Barney commences an SABP in the SMSF on 1 July while Anne’s entire member balances are still held in the Accumulation Account.
In this example, the SMSF has both a Retirement Phase Account (i.e. Barney’s SABP) and a Non-Retirement Phase Account (i.e. Anne’s Accumulation Account) at the same time throughout the Financial Year.
The SMSF is required to use the Proportionate Method to calculate the ECPI for the entire Financial Year and obtain an Actuarial Certificate. The tax exempt percentage calculated by the Actuary is applied to the SMSF’s Total Income for the entire Financial Year.
Example 3: The SMSF has only Retirement Phase Accounts in some periods and both Retirement Phase Accounts and Non-Retirement Phase Accounts in some periods
Barney and Anne are the two members of the SMSF and they are both aged over 65. Both members’ entire member balances are in SABPs on 1 July. On 1 August, Anne makes a new contribution and this contribution is allocated to her Accumulation Account.
In this example, the SMSF has only Retirement Phase Accounts during the period from 1 July to 31 July and both Retirement Phase Accounts and a Non-Retirement Phase Account (i.e. Anne’s Accumulation Account due to the new contribution) from 1 August to 30 June.
| ECPI Calculation Method |
A Combination of Methods |
Proportionate Method Only |
| When Applicable |
- Between 1 July 2017 and 30 June 2021; or
- After 1 July 2021 and the Trustees do not make a choice.
|
After 1 July 2021 and the choice is documented by the Trustees. |
| Impact on realised capital gains/losses for the applicable period |
From 1 July to 31 July (100% in Retirement Phase)
Capital gains and losses are disregarded if a capital gains tax event occurs during this period.
From 1 August to 30 June (NOT 100% in Retirement Phase)
Capital gains and losses are not disregarded if a capital gains tax event occurs during this period.
|
From 1 July to 30 June
Capital gains and losses are not disregarded for the entire Financial Year.
|
| Impact on income (e.g. interest, dividend, rental income etc.) other than capital gains/losses for the applicable period |
From 1 July to 31 July (100% in Retirement Phase)
- Use the Segregated Method to calculate the ECPI for this period.
- The SMSF income is 100% tax exempt during this period.
From 1 August to 30 June (NOT 100% in Retirement Phase)
- Use the Proportionate Method to calculate the ECPI for this period and obtain an Actuarial Certificate.
- The average tax exempt percentage is then applied to the SMSF’s Income (incl. net realised capital gains) for this period.
|
From 1 July to 30 June
- Use the Proportionate Method to calculate the ECPI for the entire Financial Year and obtain an Actuarial Certificate.
- The average tax exempt percentage is then applied to the SMSF’s Total Income (incl. net realised capital gains) for the entire Financial Year.
|
Document the ECPI Calculation Method Election
After 1 July 2021, the SMSF is entitled to choose which ECPI method is appropriate if all of the following criteria are met:
- The disregarded small fund assets (DSFA) rule does not apply, and
- The SMSF has only Retirement Phase Accounts in some periods and both Retirement Phase Accounts and Non-Retirement Phase Accounts in some periods.
If the SMSF does not make a choice, the Segregated Method must be used to calculate the ECPI for the periods when the SMSF is 100% in Retirement Phase and the Proportionate Method must be used to calculate the ECPI for the other periods when the SMSF is not 100% in Retirement Phase.
How does ESUPERFUND collect the information?
In order to determine whether your SMSF is required to obtain an Actuarial Certificate and which ECPI calculation method should be used for your SMSF, ESUPERFUND will collect the following information from SMSFs that have Retirement Phase Accounts annually:
- Member’s Total Superannuation Balance on the previous 30 June (to determine whether the DSFA rule applies to the SMSF);
- Trustee’s minutes of meeting to document the Trustee’s preferred ECPI calculation method when the DSFA rule does not apply. If the Trustees do not complete the ECPI election minutes, ESUPERFUND will use the Segregated Method to calculate the ECPI for the period the SMSF is 100% in Retirement Phase.
SMSFs that have Retirement Phase Accounts at any point of the Financial Year will be contacted by ESUPERFUND via the Client Portal Inbox before we prepare the SMSF’s Annual Tax Return. You are NOT required to provide the information to our office until such information is requested by ESUPERFUND.
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