Technical Questions

• 1. Does my fund need an Actuarial certificate?
• 2. How the tax exempt percentage is calculated?
• 3. If there are realised capital losses in the superfund which are more than other investment income, can I claim a set off of capital losses and not take the actuarial certificate?
• 4. If my SMSF has both segregated and unsegregated assets, how do I apply for actuarial certificate?
• 5. I have already transferred the whole balance of a member’s accumulation account to a pension account. How do I receive further contributions for this member?
• 6. Up to what age can SMSF receive contributions on behalf of a member?
• 7. If a member is already running one or more pension accounts and has received new contributions also, what options does he have?
• 8. Do I need to pay pensions in cash or a journal entry crediting the member’s account would be sufficient?
• 9. I want to start a pension midyear, do I have to revalue all the assets before I can start the pension?
• 10. I have started the pension midyear, do I need to pay the full amount of minimum pension?
• 11. If SMSF does not pay minimum annual pension payment as required under SIS Regulations, what are the consequences?
• 12. My SMSF which has all the accounts on pension phase. It has some capital losses during the financial year. Can these be carried forward?
• 13. My SMSF has one of the pensions commuted during the year. Do I still need to pay the minimum pension?

Your fund needs an actuarial certificate or not will depend on two permutations;
First: is the fund paying a pension or not;
Second: if yes to above, are the pension assets of the fund segregated or not;.

In some funds it can be relatively simple to fully segregate assets of the fund to avoid the need for an actuarial certificate, however, please note that segregation of assets requires a lot more administration work i.e. identifying and recording assets separately / separate bank accounts / allocation of each common expense (e.g. audit fees) in a manner that will satisfy the regulator and your auditor.

The un-segregated (mixed) approach is easier to manage and administer, where all fund assets are pooled together and a percentage of the pooled assets are paying a pension and remainder assets are in accumulation phase. Actuarial certificate then determines the percentage of income of the total income which is exempt pension income.

The tax exempt percentage is calculated by dividing weighted average pension liabilities with weighted average total assets of the Fund.

If the fund has other positive investment income like interest and dividend then realised capital losses cannot be set off against such income and would need to be carried forward to be set off against a capital gain in subsequent year. So if the fund has other positive investment income, fund would need to obtain an actuarial certificate to claim Exempt current pension income.

To be confirmed with Manoj.

Once balance of an accumulation account is transferred to pension account, no further contributions can be added to this pension account. Any further contributions have to be received in a separate new accumulation account. While a member can have as many pension accounts as he likes but he cannot have more than one accumulation account at any point of time.

Contributions can be received for a member up to the age of 74. However after a member turns 65 he has to meet a work test where he has to be gainfully employed for at least 40 hours in a period of 30 consecutive days during the financial year.

The member can either start a new pension with the accumulated balance or he can roll back one or more pension account into accumulation account and start a new pension with the combined balance. This is called refreshing of pension.

To comply with the regulations, all pensions must be paid in cash during the financial year. Pension can not be paid in-species by the SMSF. A pension will be considered paid in cash when cash is drawn from the SMSF’s account or an electronic transfer is received in the member’s account. If the payment is through cheque, cheque is received and deposited in the member’s bank account by 30 June and it is subsequently honoured. If the cheque is issued by the SMSF by 30 June but deposited subsequently by the member in his bank account or if the cheque is deposited by 30 June but is not honoured subsequently, it will not be treated as pension having been paid in cash.

Yes, the assets have to be revalued to its current market value before you start the pension to determine the current value of member’s accumulation account which will be used to purchase the pension.

No, for pensions started midyear full amount of minimum pensions need not be paid. Pensions can be paid pro rata for the remaining period from the date of start of pension.

If minimum pension is not paid in a particular year, it may not be considered as pension and consequently there will be no entitlement to deduction for exempt current pension income deduction. However if the minimum pension could not be paid due to factors beyond the trustees control, like not being able to liquidate assets due to current economic conditions despite taking all reasonable steps, it would not be generally considered a contravention unless where the contravention is intentional.

Extending the basic taxation principle that any expenditure or outgoing incurred to earn an exempt income is not allowed as an expense and any losses so incurred are not allowed to be carried forward, the capital losses incurred by the SMSF which has all the accounts in pension phase thus having all the income earned as exempt cannot be carried forward.

Yes, You must pay the pro rata minimum pension payment for the period from 1 July to the date of commutation.