What is an actuarial certificate and does my SMSF need one?

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 receive a tax refund every year if their share investments include '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'll hear this referred to as the fund's 'actuarial percentage', and the document confirming it is called an "'actuarial certificate'.

Do all SMSFs with pensions need an actuarial certificate?

No – not always. If your SMSF is entirely in retirement phase (meaning all members are fully in pension mode with nothing remaining in accumulation accounts), the fund's assets are automatically treated as supporting those pensions and no actuarial certificate is required. These are sometimes called '100% pension funds'.

However, if your fund has a mix of members in accumulation and pension phase, or certain members have large superannuation balances across all their funds, an actuarial certificate will generally be required to calculate how much of the fund's income is exempt from tax. There are also some situations where getting a certificate may technically be optional but not worthwhile – for example, if the potential tax saving would be less than the cost of obtaining one.

For a detailed explanation of exactly when a certificate is required, when you have a choice of method, and when it might make sense not to claim the exemption at all, read our article: When should an SMSF obtain an actuarial certificate? or When SMSFs need an Actuarial Certificate for ECPI and when they don't

How can Heffron help with your Actuarial Certificate?

If we look after your SMSF, we'll work out whether you need an actuarial certificate each year and if you do, we'll provide one. We use it to calculate 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 with 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's 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. Learn more about our actuarial certificate services here.

You may also be interested in...

• When does an SMSF paying pensions not need an Actuarial Certificate?

This article is for general information only. It does not constitute financial product advice and has been prepared without taking into account any individual's personal objectives, situation or needs. It is not intended to be a complete summary of the issues and should not be relied upon without seeking advice specific to your circumstances.