An issue that can make tax reporting tricky for trustees of self-managed super funds is apportioning fund expenses between assessable income and non-assessable income, so that deductions are calculated correctly.
The ATO has issued an addendum to a tax ruling (TR 93/17), which deals with deductions available to superannuation funds. The addendum clarifies the income tax treatment of certain expenses and provides examples of how the ATO treats expenses and how it expects them to be apportioned.
Expenditure of a super fund is deductible if it is an outgoing incurred in producing assessable income or is an essential part of the fund’s business operations.
The following types of expenses are usually deductible: actuarial, accountancy and audit fees; costs of complying with regulatory provisions; trustee fees and premiums under an indemnity insurance policy; costs in connection with the calculation and payment of benefits to members; investment adviser fees and the cost of providing pre-retirement services to members; and subscriptions to industry bodies.
Costs incurred in producing non-assessable income (such as pension income) are not deductible. Costs incurred partly in producing assessable income and partly non-assessable income must be apportioned.
The correct method for apportioning expenditure between assessable income and non-assessable income depends on the particular circumstances of the case.
If there is a single outlay in respect of a service, only part of which is used for gaining or producing assessable income, then the following principles apply: if a distinct part of the service is devoted to producing assessable income and part is not, the expenditure can be apportioned according to the ratio of those parts; and if the outlay services both aspects “indifferently”, another method must be used to apportion the expenditure, which gives a fair and reasonable assessment of the extent to which it relates to assessable income.
A superannuation fund with current pension liabilities that does not segregate its assets will usually be required to obtain an actuary’s certificate to determine the proportion of its income that is exempt from income tax.
In these circumstances it may be fair and reasonable for the fund to use the exempt income percentage from the actuary’s certificate to determine the deductible portion of expenses.
Where a fund elects to use a particular method of apportionment, the ATO expects that this method would be used consistently over time.