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Ruling

Subject : Deduction of Fees and Charges

Question

Are you entitled to claim a deduction for the administration fees, investment management fees and insurance premiums deducted from your superannuation fund?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commences on

1 July 2010

Relevant facts and circumstances

You are a current member of a superannuation fund.

You and your employer both contribute to the fund.

You have provided a copy of your annual statement.

Your member account includes after-tax member contributions and investment earnings.

The employer account includes employer contributions, salary sacrifice contributions and investment earnings less administration fees, insurance premiums and switching fees.

Administration fees, death and total and permanent disablement insurance (unit insurance premiums) and income protection premiums are deducted from the employer account.

Investment management fees are deducted from investment earnings before they are allocated to your account.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

However, for an expense to be deductible under section 8-1 of the ITAA 1997 it must be incurred by you.

Insurance premiums

Members and employers make contributions to superannuation funds to provide retirement benefits for the members. Some funds may provide an ancillary benefit, that is - death or disability benefit or income protection benefit to its members as part of their association with the fund. The fund may insure any contingent liability it has to pay death and disability benefits or the fund may be self insured. Provision of ancillary benefits does not change the fact that the contribution made by the members and employers are for retirement benefits and not for the insurance cover.

It is considered that the fund owns the insurance policy. Therefore, the superannuation fund is the actual taxpayer entitled to a deduction. This is because the expense is incurred by the superannuation fund, not its members. The deduction is claimed against income that is earned by the fund.

In your case, the insurance premiums have been deducted from your superannuation fund account. However, you have not actually purchased the death, total and permanent disablement insurance and income protection insurance. It has been provided for you by your superannuation fund. The fund owns the insurance policies and has incurred the expense for the insurance premiums.

Therefore, you are not entitled to a deduction for the insurance premiums paid from your superannuation fund account under section 8-1 of the ITAA 1997 as you have not incurred the expense.

Investment management fees and administration fees

The Commissioner's view on the deductibility of ongoing management fees was originally set out in Taxation Ruling IT 39 and subsequently in Taxation Determination TD 95/60. In both instances it was determined that where such fees were incurred in servicing an existing investment portfolio the cost was deductible to the extent that the portfolio produced assessable income. Although not specifically stated in the determination it was an inherent part of the decision that the assessable income referred to would be the assessable income of the taxpayer and not the assessable income of some other taxpayer such as a superannuation fund.

Superannuation funds, as part of their operations, allocate their income and expenses to their members. The income earned by the superannuation fund does not form part of the assessable income of the members. Similarly, any deductions allocated to the members are not deductible to the members. They are expenses incurred by the superannuation fund.

The superannuation fund may document its payment of fees as a debit against the member's accounts or deduct it from the gross earnings before crediting the net amount to its member's accounts. This does not alter the fact that the fees are actually incurred by the superannuation fund.

In your case amounts for investment fees, investment charges and expenses have been deducted from the scheme. These deductions are borne indirectly by members and are taken into account when declaring the unit price.

Accordingly, no deduction is available under section 8-1 of the ITAA 1997 for any of the fees incurred in managing your superannuation account, as they have not been incurred by you.