Miscellaneous Taxation Ruling

MT 2005/1

What is the tax treatment of an expense incurred by a superannuation fund that is paid by an employer or eligible person on behalf of a superannuation fund?

  • Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.
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FOI status:

may be released

What this Ruling is about
Date of effect
Ruling
Explanation
Alternative views
Definitions
Detailed contents list

Preamble

The number, subject heading, What this Ruling is about (including Class of person/arrangement section), Date of effect, and paragraphs 5 to 9 and 12 of the Ruling part of this document are a 'public ruling' for the purposes of Part IVAAA of the Taxation Administration Act 1953 and are legally binding on the Commissioner. In addition where the ruling deals with GST, it is a ruling for the purposes of section 37 of the Taxation Administration Act 1953 and is legally binding on the Commissioner.

Paragraphs 10 and 11 are not binding on the Commissioner of Taxation. Taxation Rulings TR 92/1 and GSTR 1999/1 explain when a Ruling is a 'public ruling' and how it is binding on the Commissioner.

[ Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]

What this Ruling is about

1. This Ruling sets out the Commissioner's views on the tax treatment of expenses incurred by a superannuation fund that are paid by an employer or eligible person[1] on behalf of the superannuation fund.

2. A reference in this Ruling to an employer or eligible person paying an expense on behalf of a superannuation fund is a reference to an employer or eligible person paying money to a third party to extinguish a present liability of a complying superannuation fund. This Ruling does not cover the tax treatment of losses or outgoings incurred by an employer that may indirectly give an economic benefit to a fund.

Class of persons

3. The class of persons to which this Ruling applies is employers and eligible persons who pay expenses on behalf of a superannuation fund and the funds that have incurred the expense.

Date of effect

4. This Ruling applies both before and after its date of issue. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

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Goods and services tax

13. The employer or eligible person paying the expenses incurred by the fund is not entitled to input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the acquisitions for which the expenses are paid because it has not acquired anything for the payment. The fund is entitled to input tax credits, including reduced input tax credits where applicable, in relation to the acquisitions, but only to the extent that credits would be available if the fund had paid the expense directly.

Explanation

Background

14. The Tax Office's preferred approach is for all superannuation fund expenses to be paid directly out of the fund itself and for superannuation contributions to be made directly to the fund. This provides clarity because the outgoings of the employer or eligible person and the fund directly match the tax treatment.

15. However, the Tax Office recognises that the practice of an employer or eligible person paying an expense on behalf of a superannuation fund is common. This is usually done for administrative ease, for example, where the fund does not have a cheque account. The practice involves the making of journal entries after the expense is paid that, in the case of the employer or eligible person, re-classifies the expense payment as a superannuation contribution and, in the accounts of the superannuation fund, recognises the making of the contribution and payment of the expense.

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Goods and services tax

39. Under the GST Act, registered entities are entitled to claim input tax credits for the GST paid on their creditable acquisitions.

40. Under section 11-5 of the GST Act you make a creditable acquisition if:

(a)
you acquire anything solely or partly for a creditable purpose; and
(b)
the supply of the thing to you is a taxable supply; and
(c)
you provide, or are liable to provide, consideration for the supply; and
(d)
you are registered, or required to be registered.

41. Section 11-15 of the GST Act defines 'creditable purpose':

(1)
You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.
(2)
However, you do not acquire a thing for a creditable purpose to the extent that:

(a)
the acquisition relates to making supplies that would be input taxed; or
(b)
the acquisition is of a private or domestic nature.

42. It is the view of the Tax Office that the employer or eligible person is not entitled to input tax credits in respect of acquisitions of a superannuation fund, the costs of which are being borne by the employer or eligible person. This is because section 11-5 of the GST Act has not been satisfied in circumstances where an employer sponsor or eligible person pays expenses incurred by a superannuation fund, because the payer has not acquired anything for the payment.

Superannuation funds

43. In the case of the superannuation fund, the supply of an interest in or under a regulated superannuation fund is an input taxed supply under section 40-5 of the GST Act. Where an entity makes an acquisition in the course of an enterprise of supplying interests in a regulated superannuation fund, to the extent its acquisitions relate to making input taxed supplies, they are not for a creditable purpose. The entity is not entitled to input tax credits for those acquisitions. Superannuation funds can, however, claim reduced input tax credits under Division 70 of the GST Act for certain acquisitions, such as in relation to administration expenses.[20] The superannuation fund may claim input tax credits in relation to the expense payment to the same extent applicable had the fund paid the expense directly.

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Detailed contents list

52. Below is a detailed contents list for this Taxation Ruling:

  Paragraph
What this Ruling is about 1
Class of persons 3
Date of effect 4
Ruling 5
Deductibility by the employer or by the eligible person 5
Taxable contributions in the hands of the superannuation fund 8
Deductibility of expense by the superannuation fund 9
Superannuation guarantee 10
Superannuation surcharge 11
Fringe benefits tax 12
Goods and services tax 13
Explanation 14
Background 14
Deductibility by the employer or by the eligible person 16
Legislation 16
Meaning of 'contribution' 19
Contributions by an employer must be for the purpose of making provision for superannuation benefits for an eligible employee 22
No deductibility under other provisions 24
Taxable contributions in the hands of the superannuation fund 26
Deductibility of expense by the superannuation fund 28
Superannuation guarantee 29
Superannuation surcharge 32
SIS Act Covenants 34
Fringe benefits tax 35
Goods and services tax 39
Superannuation funds 43
Alternative views 44
Definitions 48
Eligible employee 48
Eligible person 49
Complying superannuation fund 50
Regulated superannuation fund 51
Detailed contents list 52

Commissioner of Taxation
27 April 2005

Footnotes

1 See the definition of 'eligible person' at paragraph 49 of this Ruling.

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3 A deduction may be allowable to certain associates of the direct employer. See the definition of 'eligible employee' at paragraph 48 of this Ruling.

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20 See Goods and Services Tax Ruling GSTR 2004/1 which provides guidance on which acquisitions are reduced credit acquisitions that entitle an entity to a reduced input tax credit under Division 70 of the GST Act.

This Miscellaneous Ruling finalises MT 2004/D2.

References

ATO references:
NO 2004/11161

ISSN: 1039-0731

Related Rulings/Determinations:

TR 92/1
TR 92/20
TR 93/17
TD2004/18
SGD 2003/7
GSTR1999/1
GSTR 2004/1

Legislative References:
ITAA 1936 26AAB
ITAA 1936 Pt III Div 3 Subdiv AA
ITAA 1936 82AAA
ITAA 1936 82AAA(1)
ITAA 1936 82AAC
ITAA 1936 82AAC(1)(a)
ITAA 1936 82AAC(1)(b)
ITAA 1936 82AAC(2A)
ITAA 1936 82AAR
ITAA 1936 Pt III Div 3 Subdiv AB
ITAA 1936 82AAS(2)
ITAA 1936 82AAT
ITAA 1936 82AAT(1A)
ITAA 1936 82AAT(2)
ITAA 1936 267
ITAA 1936 274
ITAA 1936 274(1)
ITAA 1936 274(1)(a)(i)
ITAA 1936 274(1)(b)(i)
ITAA 1936 274(2)
ITAA 1936 281
ITAA 1997 8-1
ITAA 1997 26-80
ITAA 1997 26-80(1)
SGAA 1992 Pt 3
SGAA 1992 16
SGAA 1992 22
SGAA 1992 23
SCT(AC) Act 1997 8
SIS Act 1993 10(1)
SIS Act 1993 19
SIS Act 1993 42
SIS Act 1993 45
SIS Act 1993 52(2)(d)
FBTAA 1986 20
FBTAA 1986 136(1)
ANTS(GST)A 1999 Div 11
ANTS(GST)A 1999 11-5
ANTS(GST)A 1999 11-15
ANTS(GST)A 1999 40-5
ANTS(GST)A 1999 Div 70
TAA 1953 Pt IVAAA
TAA 1953 37

Case References:
AAT Case 5636
(1990) 21 ATR 3212


Brookton Co-operative Society Limited v. Federal Commissioner of Taxation
[1981] HCA 28
(1981) 147 CLR 441
(1981) 55 ALJR 479
(1981) 35 ALR 295
(1981) 81 ATC 4346
(1981) 11 ATR 880

Federal Commissioner of Taxation v. Northern Timber and Hardware Co. Ltd
(1960) 34 ALJR 376
(1960) 12 ATD 257
[1961] ALR 466
(1960) 103 CLR 650

Metropolitan Gas Co. v. Federal Commissioner of Taxation
(1932) 6 ALJ 318
(1932) 39 ALR 60
(1932) 2 ATD 178
(1932) 47 CLR 621

Raymor Contractors Pty Ltd v. Commissioner of Taxation
(1991) 91 ATC 4259
21 ATR 1410

Temples Wholesale Flower Supplies Pty Limited v. FC of T
(1991) 29 FCR 93
21 ATR 1606
91 ATC 4387

Walstern v. Commissioner of Taxation
2003 ATC 5076
54 ATR 423

Other References:
Australian Oxford Dictionary 1999
Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986
Superannuation Circular I.A.1
Superannuation Circular II.D.3

MT 2005/1 history
  Date: Version: Change:
  27 April 2005 Original ruling  
  29 November 2006 Original ruling + note Repeal provision note
You are here 17 June 2009 Consolidated ruling Partial Withdrawal
  27 January 2016 Withdrawn