This also permits such funds to use the segregated method to calculate ECPI through exclusion from DSFA provisions.

Speaking at the recent ASF Audits Technical Education seminar, Accurium technical services manager Melanie Dunn said that there are certain complexities that can emerge when factoring accumulation interest and how that interacts with the new ECPI rules for funds needing to be solely in retirement phase.

“A really interesting quirk of this provision is that when we’re excluding funds from the disregarded small fund asset provision, it’s looking for the fund to be solely in retirement phase over the entire income year,” Ms Dunn said.

“If we had a situation where a fund received a contribution and started a pension on the same day, if the fund made a partial computation or a commutation and restarted a pension, then technically there’s a period of the day where the fund was not solely in retirement phase.

“Now, if that extended over a day, you would have a period there where you weren’t solely in the retirement phase, and the fund again may be caught by these disregarded small fund asset provisions; however, if it’s all on the same day, it does call into question where the boundaries lie if the fund only had that accumulation interest momentarily.

“Would the ATO apply these new rules in a practical sense to allow the fund to continue to meet the requirements to not have disregarded small fund assets and claim ECPI under the segregated method?”

This is something that SMSFs need to look out for, especially those introducing accumulation interest into the fund that’s solely in retirement phase and would otherwise be caught by the disregarded small fund asset provisions, according to Ms Dunn. 

Practitioners should make sure that those events happen all on the same day, but even in that case, there is no certainty whether that would mean it would not meet the requirements for this new provision.

“In any case, remember that you would still get the right exempt current pension income outcome; the only thing in question is whether you would need to get an actuarial certificate,” she explained.

“It’d be really good to see some further guidance from the ATO on this around how they would treat a fund in these types of situations, particularly where the interest, the accumulation interest, is only there momentarily on the same day.

“Certainly, from an actuarial perspective, if we see that in an SMSF where a contribution comes in and is immediately converted up into pension phase, it doesn’t impact their ECPI, they would still be 100 per cent exempt, and it would seem reasonable. 

“Hopefully, we see some information come out of the ATO that in their view, this type of situation still meets the requirements to allow this type of fund to continue to claim ECPI under the segregated method.”