When preparing a tax return for a fully pensioned Superfund, Exempt Current Pension Income (ECPI) plays a key role. ECPI ensures that income used to support pension payments is exempt from tax, which is a primary benefit of pensioned Superfunds. Here’s a quick guide to handling ECPI in your tax return.
ECPI refers to the income generated within the Superfund that is exempt from tax because it’s being used to pay pensions. This income must be directly supporting pension payments to qualify for the exemption.
How it is being recorded in the tax return?
From the Superfund>Item 10. Exempt current pension income, the following items should be considered:
1. Question "Did the fund pay retirement phase superannuation income stream benefits to one or more members in the income year?" should be marked YES.
Note that items W, Y and V are only be visible in LodgeiT and doesn't change data transferred to ATO. As ATO demands that taxable income still should be equal to 0 less deductible expenses.
2. Item A "Exempt current pension income amount" should be filled in.
3. Question "B-Which method did you use to calculate your exempt current pension income?" should be marked as "Segregated". Else, use "Unsegragated" for a not fully pensioned superfund.
4. Item "D-Was an actuarial certificate obtained?" is NO since actuary is used only for a not fully pensioned fund.
5. Item "E-Did the fund have any other income that was assessable?" is NO. It means "O Taxable income or loss" will not be changed.
6. Question "Franking credits related to the exempt current pensio" should be filled in to claim a refund.
For a superannuation fund that is 100% in the retirement phase, all income derived from its assets supporting the payment of superannuation income stream benefits is classified as Exempt Current Pension Income (ECPI). This means the income is exempt from tax and does not form part of the fund's assessable income. and no need to report on the Income section of the tax return.
How expenses are treated when an SMSF has ECPI. All expenses, other than Insurance and ATO levy, should be classified as "Non Deductible Expenses"
You may refer to this ATO guide - How expenses are treated when an SMSF has ECPI | Australian Taxation Office