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Ruling

Subject: Apportionment of deductions

Question

Are both concessional and non-concessional contributions taken into account when determining the apportionment of general administrative expenses between exempt and assessable income when using the formula in paragraph 8(b) of Taxation Ruling TR 93/17?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The taxpayer is a member and director of the corporate trustee of the Superannuation Fund

From 1 July 2010, the taxpayer commenced a transition to retirement income stream from the fund. The taxpayer and his employer continued to make contributions to the fund.

For the purposes of calculating the funds taxable income, the fund is unsegregated ie. The trustee has not segregated specific assets to the taxpayer's pension account.

Since 1 July 2011, the fund has received both deductible and non-deductible personal contributions.

In the year ended 30 June 2012, the fund will incur various general administrative expenses including accounting and audit fees.

The trustee intends to use the formula in paragraph 8(b) of Taxation Ruling TR 93/17 to apportion the fund's general administrative expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6AC

Income Tax Assessment Act 1936 Subsection 82AAT(1)

Income Tax Assessment Act 1936 Section 160AQT

Income Tax Assessment Act 1936 Section 160ZO

Income Tax Assessment Act 1936 Subsection 274(1)

Income Tax Assessment Act 1936 Subparagraph 274(1)(a)(i)

Income Tax Assessment Act 1936 Subparagraph 274(1)(b)(i)

Income Tax Assessment Act 1936 Section 277

Reasons for decision

Summary

When using formula (b) of Taxation Ruling TR 93/17 to determine deductions allowable to your superannuation fund, 'assessable income' includes contributions made by another person for the member's benefit and deductible personal contributions. 'Assessable income' does not include undeducted or non-concessional contributions.

Detailed reasoning

As a general rule, the deductibility of expenses is governed by Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). A deduction is available only to the extent to which the relevant expenditure is incurred in gaining or producing assessable income.

The general principles governing deductibility of expenditure incurred by superannuation funds are contained in Taxation Ruling TR 93/17.

Paragraph 8 of TR 93/17 states that "since each case depends on its own facts, it is not possible to prescribe a single method for apportioning expenditure of a superannuation fund so as to give a fair and reasonable assessment of the extent to which the outlay relates to assessable income". The tax ruling continues to provide two generally accepted methods of apportionment. You have requested to use formula (b) which is shown below.

(b) General administrative expenses relevant to the operation of the fund as a whole can generally be apportioned according to the formula:

Total income means assessable income plus exempt income. Assessable income for apportionment purposes includes all contributions to the fund (section 277), net capital gains (section 160ZO), imputation credits (section 160AQT) and foreign income 'gross ups' (section 6AC). Exempt income for these purposes includes amounts received on the disposal of units in pooled superannuation trusts.

Former section 277 of the ITAA 1936 stated:

In determining the deductions allowable from the assessable income of an eligible entity that is:

(a) an eligible ADF; or

(b) a resident superannuation fund in relation to the year of income concerned;

any amount that is paid to the entity as mentioned in subsection 274(1), or is a contribution to which subsection 82AAT(1) applies, is taken to be assessable income of the entity (whether or not it is a taxable contribution).

Former subsection 274(1) of the ITAA 1936 included contributions made by another person for the benefit of the taxpayer (subparagraph 274(1)(a)(i)) as well as deductible personal contributions (subparagraph 274(1)(b)(i)). It does not include non-deductible personal contributions. Subsection 82AAT(1) includes personal contributions made to the fund for which a person has claimed a deduction. The bracketed phrase 'whether or not it is a taxable contribution' is merely to reinforce that a deductible personal contribution is to be included in the calculation, even if for some reason it was not included in the fund's income.

Therefore, when using the formula in paragraph (b) of TR 93/17, undeducted or non-concessional contributions are not to be included in 'assessable income'.