One of the main benefits of starting a retirement phase pension in an SMSF (see here for an explanation of retirement phase pensions) is that the fund stops paying income tax on some or all of its investment income.
Investment income doesn’t just include regular amounts like interest, rent, dividends and trust distributions. It also includes capital gains (the profit a fund makes when it sells investments for more than their purchase price). Some pension funds pay no tax at all and might in fact just receive a tax refund every year if they have received dividends from investments in shares and these include amounts known as “franking credits”.
To get this valuable tax treatment, many pension funds need a special calculation done by an actuary. The actuary works out what proportion of the fund was paying retirement phase pensions during the year. If that proportion is (say) 60%, then 60% of the fund’s investment income is exempt from tax. You might hear this described as a fund’s “actuarial percentage” and the actuary provides this in an “actuarial certificate”.
How can Heffron help you?
If we look after your SMSF we will work out whether or not you need an actuarial certificate each year and if you do, we’ll provide one. We use it to work out how much of your fund’s income is exempt from tax when we prepare your fund’s tax return. You’ll see a copy of the actuarial certificate in the package of documents you receive when we send your financial statements each year.
If you want to know how much tax the certificate is saving you, find the amount of “exempt current pension income” in your SMSF’s annual return. That is the amount of income your SMSF has received that isn’t subject to any tax. You’re saving tax equal to 15% of this amount.
If you’re an accountant, we can also provide actuarial certificates for your clients and we are fully integrated with Class and BGL360. Read about our services here.
If you need anything, please don't hesitate to contact us.