ATO, Pensions

Changes made to ECPI calculation rules

Calculations written on chalkboard

Trustees in accumulation and retirement phases will now both be able to choose their preferred method of ECPI calculation.

The federal government has announced it will change the methodology under which superannuation funds calculate exempt current pension income (ECPI), allowing trustees in both the accumulation and retirement phases in one financial year to choose their preferred method of calculation.

The move was announced by Treasury in the 2019/20 budget papers, which stated the government would allow superannuation fund trustees who had interests in both the accumulation and retirement phases during an income year to choose a preferred method of calculating ECPI.

Additionally, the government will also no longer require funds to obtain an actuarial certificate when calculating ECPI using the proportionate method where all members of the fund were fully in retirement phase for the whole of the income year.

SMSF Association head of policy Jordan George welcomed the calculation rule change, pointing out it was a position that had been put forward by the association in its budget submission.

“This moves reduces the red tape that was actually created by the introduction of the transfer balance cap and total super balance on 1 July 2017, so they are ensuring the ECPI rules work more efficiently from an administration perspective,” George said.

SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said he felt giving trustees the ability to choose their method of how to calculate a fund’s ECPI may change attitudes toward this issue.

“You’ll be able to use the new method the ATO has put forward, which is sort of a partitioned method, or you can use the previous method, which is that averaging method over the whole year,” Colley noted.

“So you will find people will start having a look at both methods and take the one that gives them the best tax outcome.”

Miller Super Solutions founder Tim Miller described the moves as a smart administrative measures and said the elimination of having to obtain an actuarial certificate when an SMSF is in 100 per cent pension phase was a solution to one particular anomaly.

“I’m assuming they are looking there at finding a solution for SMSFs with disregarded small fund assets, but it is a little light on in detail,” Miller said.

“But it’s a good measure from an administrative point of view.”

The changes will start from 1 July 2020 and Treasury said they were estimated to have no revenue impact over the next five-year period, unlike the contribution changes announced yesterday.

In that announcement, which was also included in the budget papers, people aged 65 and 66 will be able to make voluntary concessional and non-concessional superannuation contributions without meeting the work test from 1 July 2020 and will also be able to make up to three years of non-concessional contributions under the bring-forward rule.

The budget papers said these measures were estimated to reduce government revenue by $75 million over the next five years, with the largest impact on revenue, $40 million, scheduled to occur in the 2023 financial year.


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