Actuarial Certificates - latest from the ATO

The ATO has reconsidered its position on actuarial certificates for account-based pensions which commence part-way during a financial year.

Previously, the view of the ATO was that if an account-based pension commenced on a date other than 1 July, an actuarial certificate was required even if the pension was entirely supported by segregated current pension assets.  After discussions with key SMSF industry bodies the ATO now accepts that if an account-based pension commences on, say 2 August and is entirely supported by segregated current pension assets, an actuarial certificate is not required in order to identify the current exempt pension income of the fund.

This revised view applies to all account like pensions (eg account-based pensions, transition to retirement pensions and market linked pensions) so long as they are entirely supported by segregated current pension assets.  

The ATO has not revisited its view that assets cannot be partially segregated.  The view of the ATO is that only “whole” assets can be segregated.  For example real estate could be segregated as a current pension asset but not 2/3rds of the real estate.  Another example is that while 1,000 Com Bank shares could be segregated as a current pension asset, 25% of those 1,000 shares could not be segregated as a current pension asset.  In order to segregate a portion of the 1,000 shares, they would have to be split into two pools – the first pool of 250 shares and a second pool of 750 shares. Once the two pools have been created it would then be possible to treat the first pool as a segregated current pension asset.

While the change of view of the ATO is welcome and the cost of obtaining an actuarial certificate avoided, the SMSF will still need to quantify dentify the income derived from the assets before the account pension commenced from the income derived from that assets in respect of the period from the commencement of the pension.  It may, in some cases, be more difficult and more costly to undertake this exercise than obtaining an actuarial certificate.