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A Person Behind the ECPI Pencil

There has been a fair bit of commentary about the announced (but still to be enacted) ECPI legislative changes. My opinion is that it is a positive and highly desirable change. I believe most SMSFs will simply use the whole of year unsegregated/proportional method. However, having the choice to consider segregated/partially segregated methods allows consideration about whether the extra effort would be worth it for the particular and far less usual circumstances. In such cases, one can consider constraints of “disregarded small fund assets”, large single assets etc.

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The danger of having the wrong ECPI calculation comes from a different quarter. The logic of the calculation is to put to one side all the end of year allocations and items. Then one uses opening balances of retirement and non-retirement phases plus direct account items such as contributions and pension payment to work out a time weighted average of the two components.

However, for TBC purposes, the administrator may have revalued accounts to start a pension. One needs to be careful that net earnings are not double counted in the exempt component.

Sometimes, one sees administration quirks. One that surprises me about how often it occurs is members simply making payments against a clearing account. The SMSF administration then has to fix up with journal allocations to which member and account the payments should be allocated.

Tax on concessional contributions is another one. In large super funds, it probably is deducted at the time the contribution is made. In an SMSF, it probably is a year-end item.

I like to enjoy the ease of computer calculations and report generation, but check each input item from the general ledger. Most firms using NetActuary for ECPI certificates simply give us draft accounts before year-end allocation/trial balance and the general ledger. I like having “a person behind the ECPI pencil”. No computer system is going to plan to land a jet in the Hudson. There is definitely a place for a reasonable amount of human involvement in ECPI calculations in order to be confident to justify the percentage to the auditor and ATO.

This approach does not cost more! NetActuary’s ECPI certificate fee for 2021-22 will be the same as the current year i.e. $77 inclusive of GST.

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