Are There Any Actuarists on Here That Provide SMSF Actuarial Certificates

bigballerbrand on 08/02/2024 - 08:37

Hi guys i've got a question about ECPI and hoping an actuarist that provides SMSF actuarial certificates can answer.

If a Fund has $100 in assets at 30 June 2023 and 50% is member in pension and 50% is member not in pension then all things being equal the ECPI would be 50% for 2024.
My question revolves around the ECPI and speficially the tax on the asset that was sold.

What if the $100 is in an asset and that asset is sold in February and the member in pension phase withdraws their 50% entirely from the Fund in February.

Will that ECPI drop way more than the 50% since for majority of February/March/April/May/June the assets in the fund were 100% accumulation as all pension funds were withdrawn in February?

Financial

Comments

  • bemybubble on 08/02/2024 - 08:58

    Generally speaking ECPI looks at the full FY pension vs acc interests and accounts for contributions and withdrawals. That's how ECPI is determined.

    So if your pension interest is reduced and your acc phase account > pension then yes your ECPI would naturally drop.

    So you need to be careful whether you're using the segregated or unsegregated method for your fund as you might end up tainting how much of that asset sale was tax free…

    • Kenb0 on 08/02/2024 - 09:32

      Interesting, I wasn’t aware that you could segregate the assets within a SMSF. How does that actually work, can you just specify that that particular ETF is in accumulation phase, that other ETF is in pension phase, that IP is in pension and so on?

      • bemybubble on 08/02/2024 - 09:38

        Providing your deed allows for it - yes.

        Have never done it before but practically speaking if I was to take a property - I would need to create a seperate bank account to pool income and expenses relating to that asset and have a segregated pension policy for that. This way it's clearly distinguishable.

        Obviously doesn't work if you're over the TBC

        Personally I find it easier to just have 2 seperate SMSFs if i'm hell bent on keeping pension assets in pension mode.

    • bigballerbrand on 08/02/2024 - 10:48
      -1

      If you have $1.1m in total assets of the fund, and $1m of that is in a property and $100k is in cash/shares

      You have 3 members, with balances of $550k (pension), 350k and 200k (both accumulation)

      Are you able to say that the pension member with $550k is all segregated into 55% of the property $1m? or since the balance is less than the value of the property you cant ?

      • bemybubble on 08/02/2024 - 11:02

        You can't segregate part of a property…

        • bigballerbrand on 08/02/2024 - 12:50

          this is the problem im facing. one of the members has about 45% of the funds balance but he is entirely in pension phase.
          the other two members are in accumulation phase and they make up 55% of the funds balance.

          theyre about to sell a property in the fund that is about 95% of the assets of the fund. to try and reduce the capital gain the bigger the ECPI the better of course however the pension member wants to withdraw their funds straight away. This will reduce the ECPI by even more unfortunately.

          because at the time the property is sold, the ECPI would be around 45% but by the end of the year its 0% so the ECPI per the actuary will be somewhere in the middle.

          • bemybubble on 08/02/2024 - 13:05

            @bigballerbrand: Ahhh now i'm with you.

            The calculation is average pension liabilities over average super liabilities:

            https://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997…

            So it won't be 0% - hence why an actuary is needed

            • bigballerbrand on 08/02/2024 - 13:10

              @bemybubble: yeh this sucks though coz if you take out all your pension money on 25th june for example the year end pension will be 0 even though for 350+ dayus of the year you would have had the pension balance however using the average it simply does pension balance on 1 july and 30 June even though you may have taken it out on 29 june you know what i mean or am i confusing you?

              • bemybubble on 08/02/2024 - 13:12

                @bigballerbrand: If you had a pension balance and you took it out before year end then your average will be extremely high and close to negligible in reducing ECPI.

                Edit: PS you an accountant or FP?

                • bigballerbrand on 08/02/2024 - 13:16

                  @bemybubble: lets make the numbers really easy $5 pension $5 accumulation at both start of the year and end of the year. so its 50% ECPI all things being equal.

                  now assume you took out your entire $5 pension on 29 June.

                  so the actuary calculation will be $5 pension at 1 July + $0 pension at 30 June divide by 2 = $2.5 average pension balance
                  total super balance $10 at 1 July + $5 at 30 June divide by 2 = $7.5 average super balance

                  so 2.5/7.5 = 33% ECPI even though it would have been 50% ECPI in real terms for 364/365 days of the year no?

                  • bemybubble on 08/02/2024 - 13:21

                    @bigballerbrand: Bit more complicated than that:

                    https://act2.com.au/maximising-exempt-current-pension-income…

                    It's based on daily weighted average. So if pension withdrawals happened earlier in the year then the lower the ECPI %. Based on what you're saying if it happens later then the % will only marginally change.

                    Not an actuary so not even going to try and calculate it. But the article above sums it up well given the technical calcs.

                    • bigballerbrand on 08/02/2024 - 13:27

                      @bemybubble: i used to calculate them a decade ago (you wouldn't know it by the level of stupidity in my questions) but i remember it being impractical to do it daily so we just did it annually on opening and then closing divided by 2.

                      but this makes perfect sense. If they are doing it daily then it takes into account the pension funds were still there for longer in the year.

                      Thanks for your help buddy. Genuinely appreciate it :)

          • AndyC1 on 08/02/2024 - 21:25

            @bigballerbrand: So not it's 45/55 instead of the 50/50….

            Sounds like you need to go to court to get a ruling on what the truth is.

      • AndyC1 on 08/02/2024 - 21:23

        How did the $100 become $1.1M? I want in on this action.

  • oscargamer on 08/02/2024 - 09:08
    +2

    "Actuarists"

    LOL

    Actuary or Actuaries

    An Actuarist is maybe someone who resembles or admires an actuary?

    • jv on 08/02/2024 - 09:55
      +2

      "Actuarists"
      LOL

      "Actuarists" study the lifecycles of Actuaries.

    • bigballerbrand on 08/02/2024 - 10:48
      -1

      come on bruh english is my 3rd language lol

      but thanks for the correction. i prefer to be taught rather than be made fun of for the rest of my life lol

  • deme on 08/02/2024 - 09:20

    Cool story

  • elgrande on 08/02/2024 - 18:17

    Somewhere out there in this great land today a person is recieving financial advice from a professional who sourced their advice from Ozbargain.

    Ozbargain has officially gone full circle.

Login or Join to leave a comment
Login Join