When is an actuarial certificate required? - Grow SMSF Accountants

Most SMSF trustees know that when they start drawing a pension from their fund everything becomes tax free right? Wrong.  Like all things super and tax related it is never that easy.  In this article we will review the circumstances where an actuarial certificate is required.

What is an actuarial certificate?

An actuarial certificate determines the percentage of income that will be exempt from tax for a SMSF for a given year.  The certificate needs to be prepared by an appropriately qualified actuary, with the average cost of the annual certificate at $220 where the SMSF has account-based pensions (more for life time complying pensions).  The actuary needs to be provided with a significant amount of information to calculate the applicable percentage – including details of every single pension payment and every contribution made to the SMSF during the year.  The percentage generated by the actuarial certificate is multiplied by the taxable income of the fund (excluding contributions) to generate an amount which is claimed as a deduction – this is how the tax exemption is accounted for in the tax return of the SMSF.


When is an actuarial certificate required?

The following examples highlight the common and not so common situations of when an actuarial certificate is required:

  1. Two member SMSF, one member drawing a pension, one member still in accumulation
  2. Single member SMSF, member simultaneously making contributions throughout the year while drawing a pension (i.e. transition to retirement strategy)
  3. Pension commenced for a member part way through a financial year
  4. Two member SMSF, both members drawing pensions, one member makes a single large contribution to the fund and commences a new pension with the amount
  5. Two member SMSF, one member passes away (pension and tax exemption stops) and the death benefit (either a lump sum or pension) is commenced several months later
  6. The SMSF is paying a defined benefit pension (lifetime, life expectancy, fixed term, flexi pension) – to determine solvency


When its not needed:

Generally an actuarial certificate is not required when pension assets are segregated or kept separate from accumulation assets.  The most common time this occurs is when all members of the SMSF are drawing pensions and no longer making contributions – i.e. all assets of the SMSF are pension assets.

The other most common time when segregation applies is when the assets of various members a truly kept separate – i.e. totally different bank and investment accounts for the various members.  This is sometimes seen when accumulating adult children are in the same SMSF as their pensioner parents.

An actuarial certificate is also not required when the SMSF has a taxable loss – which makes sense because there would be zero tax anyway!

To actuarial, or not to actuarial…

When we prepare SMSF accounts for our clients, we often need to make the decision of whether to immediately commence a new pension from contributions that made to the fund, or to leave them in accumulation and obtain an actuarial certificate.  Where a transition to retirement strategy is in place and the SMSF is receiving regular contributions throughout the year (either quarterly or monthly) the decision is simple – an actuarial certificate would be obtained.

However when pension members make a large lump sum contribution, we generally will commence a new pension from the contributed amount.  This is especially important when the amount is non-concessional (after tax) contribution as we always want to keep the components as tax free.

The challenge comes when the SMSF receives multiple contributions or deposits from members in quick succession – the intention from the members generally is that the amounts should be treated as a single amount, but in practice each deposit needs to be turned into a new pension.  We strongly suggest that advice is sought in regards making large contributions to ensure the contribution caps are not breached, and the best outcome is achieved in terms of what new pension accounts are created.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *


Copyright © 2020 by Grow SMSF Pty Ltd. All rights reserved.
Registered Agent Number 26057627.

General Information Warning & Disclaimer

All information contained on this website is provided as an information service only and, therefore, does not constitute, and should not be relied upon as, financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs, and you will need to make your own decision about how to proceed. Alternatively, for financial product advice that takes account of your particular objectives, financial situation or needs, you should consider seeking financial advice from an Australian Financial Services licensee before making a financial decision.

Grow SMSF does not hold an Australian Financial Services Licence (AFSL) and we are not authorised representatives of a AFSL. We do not provide financial product advice or recommend any financial products either expressly or implied.

From time to time Grow SMSF may produce information or content about specific financial products or services that enable access to specific financial products however we do not recommend, endorse or confirm as suitable any financial product or service featured on the Grow SMSF website or social media assets. This condition specifically applies to any financial product where Grow SMSF provides services at a discounted or preferential fee due to the use of those products, services or accounts. It’s not compulsory to utilise a specific account or service provider to be a client of Grow SMSF however the types of accounts, investments and service providers you use for your SMSF will determine the fees your SMSF is charged.

Where Grow SMSF provides information in relation to a financial product or service supported by or integrated with Grow SMSF the information is factual information only about the operation of the account or service and how data or reporting information is made available to us. Before making a decision on any financial product for your SMSF you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision. As financial product and solution providers are frequently making changes to their products and services Grow SMSF cannot accept any responsibility for any outdated or inaccurate information provided on this website or via social media assets.

Grow SMSF Gold Coast based accountants looking after SMSF trustees from around Australia. Liability limited by a Scheme approved under Professional Standards Legislation.