ATO Interpretative Decision
ATO ID 2003/524 (Withdrawn)
Income Tax
Capital Allowances: business related costs - establishing a business structure for a superannuation fundFOI status: may be released
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This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed. New section 40-880 provides deductions for a greater range of business related costs where the expenditure is incurred after 30 June 2005. Expenditure incurred after that date is deducted under new subsection 40-880(2).
Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of expenditure incurred before 1 July 2005.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is an amount of capital expenditure incurred in establishing a business structure for a regulated superannuation fund deductible under subsection 40-880(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that the business is, was or will be carried on for a taxable purpose?
Decision
No. An amount of capital expenditure incurred in establishing a business structure for a regulated superannuation fund is not deductible under subsection 40-880(1) of the ITAA 1997 because a superannuation fund does not generally carry on a business.
Facts
An entity is a regulated superannuation fund. It incurs an amount of capital expenditure in establishing a structure to carry out its operations.
Reasons for Decision
Subsection 40-880(1) of the ITAA 1997 provides that an entity can deduct an amount of capital expenditure incurred in establishing a business structure to the extent that the business is, was or will be carried on for a taxable purpose.
A superannuation fund such as a regulated superannuation fund has to pass the 'sole purpose test' under section 62 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) that is, to have as its core purposes the provision of benefits for each member of the fund on or after the member's retirement, death or on attainment of a prescribed age.
A trustee of a superannuation fund is limited by for example, paragraph 52(2)(e) of the SIS Act which prevents the trustee from entering into any contract, or doing anything else, that prevents the trustee from, or hinders the trustee in, properly performing or exercising trustee's functions and powers.
Subparagraph 52(2)(f)(iii) of the SIS Act also requires the trustee to ensure the liquidity of the entity's investments having regard to expected cash flow requirements. This is to ensure that the fund has enough cash to pay members' benefits.
Paragraph 52(2)(f) of the SIS Act and Regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations) require an investment strategy be in place to manage the fund assets soundly and to secure maximum returns to members by taking into account all circumstances such as risk, diversification, liquidity and solvency.
Hence, a higher risk in carrying on a business will need to be accounted for by the trustee in the investment strategy.
Section 67 of the SIS Act also prohibits a regulated superannuation fund from borrowing except in limited circumstances.
Paragraph 13 of Taxation Ruling TR 93/17 states that 'superannuation funds are generally prohibited from undertaking speculative activities or carrying on an active business such as operating a retail shop, motel or primary production business.'
In view of the restrictions under the SIS Act and SIS Regulations, it would be difficult for a regulated superannuation fund to carry on a business and therefore, generally it would not satisfy the requirement in subsection 40-880(1) of the ITAA 1997 that it carry on a business for a taxable purpose.
Date of decision: 21 January 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 40-880(1)
paragraph 52(2)(e)
paragraph 52(2)(f)
subparagraph 52(2)(f)(iii)
section 62
section 67 Superannuation Industry (Supervision) Regulations 1994
regulation 4.09
Related Public Rulings (including Determinations)
Taxation Ruling TR 93/17
ATO ID 2003/525
Keywords
Blackhole expenditure
Capital Allowances CoE
Superannuation
ISSN: 1445-2782
| Date: | Version: | |
| 21 January 2003 | Original statement | |
| You are here | 9 June 2006 | Archived |