The government recently passed legislation enabling SMSF trustees to choose how to calculate exempt current pension income where the fund has both retirement phase and non-retirement phase interests and a period of deemed segregation.

The checklist outlines that the SMSF trustees first need to determine whether all of the fund’s assets were held solely to support retirement phase income streams at all times during the income year.

“[If this is the case, then] the fund must calculate ECPI using the segregated method where it is in 100 per cent retirement phase for all of the income year,” the ATO stated.

If this is not the case, the member then needs to determine whether the fund had disregarded small fund assets.

The fund will have disregarded small fund assets where the fund has at least one retirement phase income stream at any time of the year, has a fund member with a total super balance over $1.6 million immediately before the start of the relevant income year and that member received a retirement phase income stream from any fund, the ATO explained.

The trustees will then need to work out whether the fund segregated its assets to pay retirement phase pensions.

If it did, the fund could then use the proportionate method to calculate the ECPI for the entire income year. If no choice is made, ECPI will be calculated using the segregated method for the period of segregation.

If the fund paid a retirement phase income stream without segregating its assets, then the fund must use the proportionate method where it has no segregated current pension assets and has disregarded small fund assets.

“Funds using the proportionate method will need an actuarial certificate for each year they claim ECPI, regardless of the type of retirement-phase income stream being paid,” the ATO noted.

The ATO has also provided a checklist on methods for calculating ECPI for the income years between 2017-18 and 2020-21.