Pension & Accumulation Account
It is important to understand that every Member has two accounts in a SMSF. These Accounts are an "Accumulation Account" and a "Pension Account". These accounts are simply "Accounting Accounts" and not actual physical bank accounts. Accordingly whilst your actual Super Benefit will be invested in a range of assets including cash and shares, ESUPERFUND will allocate your Super Benefit between your "Accumulation Account" and your "Pension Account" in the accounting records of your SMSF. Importantly all earnings allocated to the Simple Account Based Pension (SABP) Account are tax free whilst all earnings allocated to the Accumulation Account and the Transition to Retirement Pension (TRAP) Account are taxed at up to 15%.
Allocating Balances between Accounts
When an SMSF has a balance in both the SABP and Accumulation/TRAP Account at any point during the financial year, an Actuarial Certificate is needed. The actuarial certificate determines what percentage of the Fund was in SABP mode (and hence tax free) and what percentage of the Fund was in Accumulation/TRAP mode and hence taxable.
Who can prepare an Actuarial Certificate?
An Actuarial Certificate must be prepared by a registered Actuary as it is not legally possible for ESUPERFUND to prepare this document for clients. Typically the fee charged to prepare this document by the Actuary is between $180 and $260, however given the scale of ESUPERFUND, we have been able to negotiate a discounted Actuarial Fee for our clients of only $110. The Actuarial Fee is payable annually only if required (that is your SMSF has a balance in both the SABP and Accumulation/TRAP Account at any point during the financial year).
Avoiding the Actuarial Certificate and Associated Fee
The good news is that the Actuarial Certificate can be avoided in the following instances:
1. SMSF with only a "SABP Account" Balance
If your SMSF is entirely in SABP Mode from 1 July (i.e. all balances for all Members are in SABP Mode) and the Members make no Contributions or Rollovers into the SMSF during the financial year, then the SMSF earnings will be totally in SABP Mode (and tax exempt) and will not require an Actuarial Certificate.
2. SMSF which converts to SABP Mode on 1 July
If your SMSF has an Accumulation Account Balance at 1 July but the balance is converted to SABP Mode on 1 July so that the entire SMSF is in SABP Mode after this date, and no further Contributions or Rollovers are made for the remainder of the financial year, then the SMSF will not require an Actuarial Certificate. In this case the SMSF will be 100% tax exempt.
3. Contributions and Rollovers immediately converted to an SABP
If your SMSF is entirely in SABP Mode from 1 July and monies are contributed or rolled into the SMSF during the financial year, the additional Contributions or Rollovers will be allocated to the Member Accumulation Account. If the Accumulation Account is immediately converted to SABP Mode on the date of the Contribution or Rollover, by applying for an Additional SABP, the SMSF will not require an Actuarial Certificate and your SMSF income will be 100% tax exempt. More on the process of commencing an Additional SABP can be found here.
4. The SMSF is entirely in Accumulation Mode and converts entirely to SABP Mode during the year
If your SMSF is entirely in Accumulation Mode on 1 July then at some date during the year all the Members commence SABPs with their entire balances (all on the same date) and no Contributions or Rollovers are made by any Member after this date then your SMSF will not require an Actuarial Certificate. Due to the market revaluation completed when the SABPs were commenced, we will be able to determine the income up to the SABP Start Date, which will be taxable. The income after the SABP Start Date in this case, up until the end of the financial year will be tax free.