An actuarial certificate is required when an SMSF is partially in accumulation mode and partially in pension mode. Starting from 1 July 2017, all earnings from Transition to Retirement (TTR) will be taxed at a rate of 15%. The aim of the actuarial certificate is to correctly determine how much of the SMSF income is taxed at 15% and how much is taxed at NIL.
When a Fund is fully in accumulation mode or fully in pension mode, an actuarial certificate is not required. It is only if in the tax year, there is a combination of 15% income and 0% pension income that an actuarial certificate is needed. This way the ATO makes sure the income is allocated correctly between taxable and tax-free components, and this is the law.
Segregated and Proportional Method
If you can identify the specific assets connected to the pension in the SMSF, and actuarial certificate is not required. An example of this is a bank account specifically used to pay a pension. All interest on this bank account will be tax-free. The interest earned on the bank account used for accumulation purposes will be taxed at 15%.
Most Funds have pooled assets. This means there’s one bank account and one share trading account. When a pension is paid from here while an accumulation account is active in the SMSF as well, an actuarial certificate will be required.
Superannuation Warehouse will arrange for the actuarial certificate when preparing your SMSF year end accounts and there is a separate fee for this that the SMSF will pay for.
Centrelink requests SMSF Trustees to do an annual actuarial certificate of a defined benefit pension. This should prove the SMSF is solvent and is operating in accordance with the terms and conditions of the pension. Centrelink will ask for a copy of this certificate.
Pension from an Accumulation Account
An SMSF can pay a pension from an accumulation account, if a condition of release has been met. This is a good option if the pension balance is low and does not warrant the expense for an actuarial certificate.
Questions and Answers:
Q: Do I need an actuarial certificate if the SMSF has a loss for the year?
A: An actuarial certificate is not required when the SMSF has a taxable loss – which makes sense because there would be zero tax anyway!
Q: Do I need an actuarial certificate if the SMSF only invests in cash?
A: Our understanding is that an Actuarial Certificate is not requried if your Fund is only investing in cash. Superannuation Warehouse uses BGL, an accounting software that accounts for the bank account of the SMSF on a segregated basis. Therefore, if we are acting as the accountant for your Fund, an Actuarial Certificate is not required.
The Tax Office provides details on when a Fund’s bank account is regarded a segregated current pension asset. For more information, please see the tax determination on td2014-007 (2) .