ECPI explained: how the exempt current pension income proportion works

Exempt Current Pension Income (ECPI) is the slice of an SMSF's investment income that is tax-free because it is supporting retirement-phase pension members. If your fund had even a single account-based pension running for part of the year, ECPI is in play — and the ATO usually wants an actuary to confirm the exempt proportion.

The two methods at a glance

1. Segregated method — assets are quarantined to support pension liabilities. 100% of income on those assets is exempt. A proportionate-method certificate is generally not required for that period, but older-style pensions and other exceptions must be checked.
2. Proportionate (unsegregated) method — assets are pooled. An actuary calculates the exempt proportion: the average value of pension liabilities ÷ average value of all superannuation liabilities, weighted by time. That percentage is the share of income that becomes ECPI. This is what triggers a TCW actuarial certificate.

How the exempt proportion is calculated

At its simplest, the formula is:

Exempt proportion = average pension liabilities ÷ average total super liabilities, across the days of the income year when the fund was unsegregated.

"Average" means time-weighted: a member balance that swings due to contributions, rollovers, pension payments, or commutations is tracked across the year. TCW does this calculation using the daily values derived from the data your accountant already has.

A quick worked example

• Fund total assets: $1,200,000 (full year average)
• Pension account average balance: $720,000
• Accumulation account average balance: $480,000
• Exempt proportion = 720,000 ÷ 1,200,000 = 60%
• If the fund had $90,000 of eligible assessable income before ECPI (excluding NALI and assessable contributions), then $54,000 is ECPI and $36,000 of that eligible income remains taxable.

Want the spreadsheet? Download the ECPI worked-example worksheet.

When you need an actuarial certificate

Under section 295-390 of the ITAA 1997, a fund using the proportionate method must obtain a certificate from a qualified actuary before claiming ECPI in its tax return. Disregarded small fund assets (DSFA) rules can also force the proportionate method on funds that would otherwise have segregated.

Common ECPI mistakes

• Forgetting the pension start date. The exempt proportion only counts days the pension was actually running.
• Mixing up commutation and pension payment. A commutation back to accumulation changes the liability profile from that day forward.
• Ignoring contributions received during the year. A large contribution into an accumulation interest mid-year shifts the weighted average significantly.

Ordering a TCW certificate

Once you have member balances, contribution history and pension dates, a TCW certificate is $80 + GST, with a four-business-hour target after complete and accurate information, subject to availability. If you want a sanity check before lodgement, that's a free email review — send it through and we'll tell you if anything looks wrong.

Need this for an SMSF you're closing out now? contact us or start an order.