Are you a trustee or member of a self-managed super fund? Did you know that the Tax Office has released a guide to explain how self-managed superannuation funds can claim an exemption from tax on income received from pension assets.
Self-managed superannuation funds [SMSF’s] may be exempt from tax once the fund commences paying pensions. Generally, ordinary income and statutory income earned by a superannuation fund from assets held to provide for pensions is exempt from income tax.
Such income is called exempt current pension income [ECPI] and can be worked out using two methods:
(a) Segregated method:
– This method is used if the assets having the sole purpose of paying the pensions can be set aside and the income they generate can be specifically identified.
– In addition, an actuarial certificate may be required before the lodgment date of the SMSF’s annual return as proof that those assets and earning thereon are sufficient to pay the pensions when they are due.
– Where all the requirements are met, the income earned from segregated pension assets is exempt from tax.
(b) Unsegregated method:
– Under this method, a tax exemption can be claimed based on the SMSF’s average value of annual pension liabilities in proportion to its average value of superannuation liabilities.
– An actuarial certificate is required to calculate exempt current pension income under this method.