As it stands, funds that are in pension phase, with a balance of more than $1.6 million, will have to roll back the excess into accumulation on or before 30 June.
They then become an unsegregated fund at that stage, because they have pension and accumulation interest.
“If [trustees] want to claim a tax exemption for any income they receive on that last day, when they’re unsegregated, they’re going to need to get an actuarial certificate for one day,” SuperConcepts general manager – technical services and education, Peter Burgess, said.
“We’ve been talking to actuaries about this, and they are of the view that they’re just going to round it up to 100 per cent and say that it’s all exempt income anyway. So this is a bit of nuisance.”
Given the extra cost for members for this, a practical approach from the ATO – which would not enforce the requirement to get an actuarial certificate for one day – would be welcome, Mr Burgess said.
“On 30 June, a lot of banks pay bank interest, so a lot of funds would get income on that last day. To the letter of the law, if they want to claim it as exempt income, they’re going to have to get an actuarial certificate for that one day,” he said.
“The risk with that is the ATO might say, ‘Well hang on, you’ve had one day you were unsegregated, you had income on that day you should get an actuarial certificate.’”
Meanwhile, Act2 Solutions director Andy O’Meagher said rounding up to 100 per cent is the “fairest and most appropriate result for these circumstances”.
“The timing of the earning of the income is far more important than the timing of the receipt of the income. If a fund spends 364 days earning income whilst fully in pension phase, it does not make any sense that they should have to pay income tax on earnings that are received on 30th June when a proportion of the fund has been commuted to accumulation for one day or part thereof,” Mr O’Meagher said.
“If the fund rolls back the amount in excess of $1.6 million on 30th June, when does it happen? Did it happen at one minute after midnight or one minute before midnight? Meaning, did it have a full trading day to earn taxable income on the accumulation balance or was there no time at all to earn taxable income on the accumulation balance. Either way, what amount of income is going to be earned in one day?”