What is an Actuarial Certificate and When Would I Need One?

23 April 2018
If you have a self-managed super fund (SMSF), you may need an actuarial certificate when it comes to the time to start drawing money from it. Here’s how actuarial certificates work and why your SMSF might need one.

An SMSF may potentially have two types of accounts within the fund: an accumulation account and a pension account. An accumulation account is used to accept contributions and/or rollovers, while pension accounts are used to pay the member a regular income stream and/or a lump sum when they decide to access their super. The tax treatment for accumulation and pension accounts are different, and sometimes there’s a need for an actuarial certificate to sort out the tax implications.

What is an actuarial certificate?

An actuarial certificate is a legal document prepared by an actuary (hence the name), which specifies what proportion of the SMSF’s earnings were from its accumulation account, and what proportion were from its pension account. This is important for tax reasons.

In order to obtain an actuarial certificate, you’ll need to enlist the services of an appropriately qualified actuary. The cost of having a certificate prepared varies, but you can usually expect to pay between $100-$250 or more all up for the certificate itself and the services of the actuary who prepared it.

Keep in mind that in order for your actuary of choice to accurately calculate how much of your SMSF’s earnings will be tax-free, you’ll need to provide them with comprehensive information regarding your SMSF – including full details of any and all contributions and pension payments made. The actuary will then use these details to figure out how much tax the SMSF will need to pay (or not pay as the case may be) on the fund’s earnings.

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Do I need an actuarial certificate?

You’ll generally need an actuarial certificate if your SMSF has both an accumulation and a pension account during a financial year, and is earning, or at any point during the financial year did earn, interest on assets which were allocated to both the SMSF’s accumulation and pension accounts.

The certificate is important because it will let the Australian Taxation Office know how much tax you’re liable to pay on these earnings.

Here’s our guide to accumulation and pension phases, segregated and unsegregated funds, and the tax implications of both.

Accumulation and pension phases

Your SMSF is said to be in the ‘accumulation phase’ when you’re still working and making contributions, and in the ‘pension phase’ when you start drawing income from your super account. When your SMSF is in its accumulation phase, its balance/earnings will be allocated to the accumulation account. Generally an SMSF account can only be in one phase at a time, but there are a handful of situations in which an SMSF will contain accounts in both phases, including but not limited to situations where:

  • The SMSF has two members where one is drawing income while the other is still accumulating savings
  • The SMSF has one member who is making contributions while simultaneously drawing income (e.g. transitioning to retirement)
  • The SMSF has one member who was saving for part of the financial year and then began to draw an income
  • The SMSF has two members where one passes away and their death benefit is paid to the other member who is still in their accumulation phase

As mentioned, the reason actuarial certificates come into play is because tax becomes tricky if an SMSF has accounts in both accumulation and pension phases at the same time at any point in the financial year. Earnings on accumulation assets are taxed at a rate of up to 15%, whereas earnings on pension assets are usually exempt from tax – but sometimes those earnings come from the same asset(s), which complicates things somewhat. This is where the idea of ‘segregated’ and ‘unsegregated’ funds becomes important.

Segregated vs unsegregated funds and their tax implications

A segregated fund is a fund that has specific assets allocated to retirement phase accounts and other specific assets allocated to accumulation phase accounts. Only certain assets are held by each type of account, meaning that come tax time it’s a simple matter of the pension account’s asset earnings being exempt from tax, while up to 15% tax is levied on the accumulation account’s asset earnings. An SMSF that has accounts solely in one of the two phases is considered to be a segregated fund, and if your SMSF is segregated it may not need an actuarial certificate.

An unsegregated fund on the other hand, pools all of its investments and doesn’t allocate specific assets to retirement or accumulation phase accounts. This doesn’t necessarily mean there will definitely be overlap between retirement account assets and accumulation phase assets, but it’s more likely than not. This makes for a more complicated situation tax-wise and as a result, an actuarial certificate must usually be obtained.

Before you enlist the services of an actuary, it may benefit you to speak to a financial adviser and figure out what your individual circumstances are and how your SMSF may affect your tax affairs.

If you’re looking at moving from an SMSF to a regular super fund, make sure you choose the best-value fund for you by comparing with Canstar.

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