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What is an actuarial certificate?
23 Sept 2021
While self-managed super funds (SMSF) provide more freedom with investment choices, there are some important things to be aware of when it comes to managing your fund. One of these is an actuarial certificate. We’ve pulled together a guide on some key information you need to know.
What is an actuarial certificate?
Prepared by an actuary, an actuarial certificate verifies how much of a self-managed super fund’s (SMSF) earnings have come from the fund’s accumulation account and retirement account and calculates the percentage of income that will be exempt from tax, says Stephen Welsh of Clayton & Foster Accountants.
An SMSF can have two types of accounts within the fund: an accumulation account and a pension account. The accumulation account can accept contributions, while pension accounts are used to pay the member a regular income stream or a lump sum when they decide to access their super. The tax implications for both accounts are different, so an actuarial certificate allows you to claim a proportion of earnings as tax-exempt in your annual tax return.
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How much does an actuarial certificate cost?
The cost of an actuarial certificate can range from $120 up to $450, according to Mr Welsh. The cost can vary depending on the complexity of your situation and the actuary preparing the certificate.
When do I need an actuarial certificate?
You will need an actuarial certificate if your SMSF has both an accumulation and a pension account during a financial year and is earning, or did earn, investment income which was allocated to both accounts in that financial year. Put simply, an actuarial certificate will be required each year that there is at least one member in each account, said Mr Welsh. Another consideration is if you have a segregated or unsegregated fund, which will also affect if you need an actuarial certificate.
There are two methods of calculating how much of your income can be exempt from tax – or what’s called exempt current pension income (ECPI) – said Mr Welsh:
- Segregated method: Specific assets are allocated to either your retirement phase account or the accumulation phase account. Only certain assets can be held by each type of account, so come tax time, only the assets in your pension account will be exempt from tax. If your SMSF is segregated, you may not need an actuarial certificate.
- Unsegregated method: This is far more complex as all assets are pooled and aren’t allocated to specific accounts. In this instance, an actuarial certificate is needed.
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Where can I get an actuarial certificate?
Actuarial certificates can generally be ordered online with a licensed actuary. Alternatively, your SMSF accountant may order you one when preparing annual financial statements through integrations with accounting software platforms and the actuary.
Before you enlist the services of an actuary, it’s a good idea to speak to a financial adviser to discuss your individual circumstances and how your SMSF may affect your tax.
Cover image source: lovelyday12/Shutterstock.com.
This article was reviewed by our Finance and Lifestyle Editor Shay Waraker before it was updated, as part of our fact-checking process.
