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There are a number of administrative and compliance obligations self-managed super fund (SMSF) trustees must meet each year, and for certain SMSFs, this may include the need to obtain an actuarial certificate.
When is an actuarial certificate required?
There are two main reasons SMSF trustees may need to engage an actuary and obtain an actuarial certificate:
- Where the SMSF has a member in retirement (pension) phase
- Where the SMSF has a member caught under the Div 296 tax laws.
Retirement phase
Where a member of a super fund is in the retirement phase of superannuation, any amount of the fund’s earnings that relate to the member’s pension phase balance is exempt from tax. That’s why an actuarial certificate may be needed to certify how much of the fund’s earnings are derived from its members’ accumulation phase balances and how much from retirement phase balances (pensions).
This information is then used to determine the tax outcome for the fund and work out how much of the fund’s income is exempt from tax (exempt current pension income) in the fund’s annual tax return.
An actuarial certificate is often required when an SMSF member moves into retirement phase and there are one or more other members of the fund who remain in the accumulation phase.
An actuarial certificate may also be required for each year there is at least one member in each phase if the actuary is using the proportionate method to calculate the fund’s exempt current pension income. The proportionate method is based on the total value of the fund’s assets each year.
However, where the SMSF trustees adopt the segregated method, no actuarial certificate is required so long as the retirement phase income streams being paid by the fund are one or more of the following types:
- an allocated pension
- a market-linked pension
- an account-based pension.
The segregated method separates assets between the accumulation and retirement phases. That way, the fund’s pension assets and the income produced from those pension assets are clearly identifiable and separate from the income generated on assets held in the accumulation phase.
It is also worth noting that transition to retirement pensions (TTR or TRIS) are not retirement phase pensions, so the fund earnings on assets that are used to pay these pensions are not exempt from tax inside the SMSF. Therefore, an actuarial certificate would not be required for an SMSF if the only pensions being paid are TTR pensions.
Division 296 tax assessments
An actuarial certificate may also be needed in situations where your SMSF has a member, or members, caught under the Division 296 tax rules. In these situations, the actuary is determining how the fund’s total earnings should be apportioned fairly between all the fund members.
Where an SMSF has more than one member, the Division 296 rules require the amount of Division 296 fund earnings that should be attributed to each member’s super interest to be determined by reference to an actuary’s certificate. This would therefore result in a fair allocation based broadly on each member’s average balance relative to the fund as a whole.
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Find out moreThis process is separate to the actuarial process required to determine the fund’s exempt current pension income.
Where can I get an actuarial certificate?
An actuarial certificate must be prepared by a qualified actuary. An actuary is a person who specialises in financial mathematics and analysis.
If you use an accountant or tax professional to help with the annual financial reporting for your SMSF, then they will usually arrange for an actuarial certificate if needed. The professional software used by your fund’s accountant will feed automatically into the actuarial provider’s systems, making the process seamless.
How much do actuarial certificates cost?
The cost for an actuarial certificate varies considerably between providers and will often be determined by its purpose. For instance, a fund that has older, defined benefit pensions will be charged more for an actuarial calculation and certificate when compared to an SMSF that only pays standard account-based pensions.
Generally speaking, the costs usually vary between $100 p.a. and $400 p.a.
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