The following types of expenses that an APRA-regulated super fund may incur are usually deductible under the general deduction provision.
- Operating expenses
- Investment advice expenses
- Tax-related expenses
- Superannuation supervisory levy
- Financial assistance levy
- Death, total and permanent disability, terminal illness and income protection insurance premiums
- Anti-detriment payment
Operating expenses
Typical operating expenses that an APRA-regulated super fund may incur are deductible under the general deduction provisionFootnote33. They are not deductible if they relate to gaining of non-assessable income or are capital in nature.
Typical operating expenses
Trustee support / general management expenses
- Trustee remuneration
- Premiums for trustee indemnity insurance policies
- Membership subscriptions to super associations (eg the Association of Superannuation Funds of Australia)
Administrative expenses
- Costs incurred in collecting contributions (eg contributions processingFootnote34)
- Benefit processing
- Member contact centre
- Intra-fund advice
- Insurance administration, for example, processing death and total permanent disability claims
Marketing and business development
- Advertising and sponsorship
- Printing costs
- Member regular communication (annual statements, product disclosure statements)
- Website maintenanceFootnote35
Complying with super law obligations
- Record-keeping requirements
- Reporting to APRA
- Accounting, actuarial or legal advice on complying with obligations under the super lawsFootnote36
- Obtaining an actuarial certificate for defined benefit pension purposes
- Complying with anti-money laundering and counter-terrorism financing rules
- Audit costs incurred in complying with APRA Prudential Standard SPS 310 Audit and Related MattersFootnote37
- Staff training on changes to the fund's administration systems as a result of super law changes
The exact nature of the investment advice expense is critical when determining deductibility under the general deduction provisionFootnote38.
If the investment advice is part of the process of creating a new income-earning structure, it is a capital expense. For example, the super fund incurs an expense in obtaining investment advice on developing a new investment option. However, if the expense meets the parameters of business-related capital expenditure (or blackhole expenditure) it may be deductible over a five-year period.
Where the investment advice is part of the process of earning gross income from investments, it is of a revenue nature. In addition, if there is no change in the objects or aims of an existing investment strategy, the investment advice expenses incurred form part of the income earning process and are considered deductible.
Examples of deductible investment advice expenses incurred by the trustee of the super fund include:
- ongoing management fees or retainers paid to investment advisers
- costs of servicing and managing an investment portfolio
- the cost of advice obtained by the fund in managing its investment strategy to change the mix of investments, whether by the original or a new investment adviser – provided it does not amount to a new financial plan.
If the investment-related advice covers other matters, or relates in part to investments that do not produce assessable income, only a proportion of the fee is deductible.
See also:
Tax-related expenses
A specific deduction is allowable for an expense (that is not a capital expense) incurred in managing tax affairs or complying with a Commonwealth law obligation imposed on the trustee of a super fund. This is to the extent that the obligation relates to the entity's tax affairsFootnote39.
Examples of deductible tax-related expenses incurred in managing a super fund’s income tax affairs and complying with income tax laws include:
- preparation and lodgment of the fund’s income tax return
- actuarial costs incurred in satisfying income tax obligations (e.g. to determine the amount of tax-exempt income, or exempt current pension income).
As a general rule you cannot deduct capital expenditure under the tax-related expenses specific deduction provision. However, for this purpose expenditure is not capital expenditure merely because the tax affairs concerned relate to matters of a capital natureFootnote40. For example, the trustee of a super fund can deduct expenditure it incurs in applying for a private ruling on whether it can depreciate an item of property.
Tax-related expenses do not need to be apportioned on account of the super fund deriving non-assessable income.
Super supervisory levy
As noted at paragraph 5(a) of Taxation Ruling TR 93/17, the super supervisory levy payable by APRA-regulated super funds is deductible as a tax-related expenseFootnote41.
However, the late payment penalties for the super supervisory levy are not deductibleFootnote42.
See also:
- TR 93/17 Income tax: income tax deductions available to superannuation funds
Financial assistance levy
The financial assistance levy payable by APRA-regulated super funds is deductibleFootnote43. The levy does not need to be apportioned where a super fund is gaining assessable and non-assessable income.
The levy helps fund the Commonwealth Government's program providing financial assistance to APRA-regulated super funds that have suffered loss through theft or fraud.
Death, total and permanent disability, terminal illness and income protection insurance premiums
A specific deduction for insurance premiums is available to the trustee of a complying super fund. This is for premiums paid for insurance policies that are for current or contingent liabilities to provide death or disability benefitsFootnote44.
A deduction is available for the insurance premiums to provide for:
- super death benefits
- terminal medical condition benefits
- disability super benefits
- benefits provided due to temporary inability to engage in gainful employment for a specified period.
A disability super benefit means:
- the benefit is paid to a person because he or she suffers from ill-health (whether physical or mental)
- two legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training.
From 1 July 2014, a trustee is prohibited from providing insured benefits that are not consistent with the conditions of release in the Superannuation Industry (Supervision) Regulations 1994 (SISR) for death, terminal medical condition, permanent incapacity and temporary incapacity.
The prohibition does not apply to the continued provision of insured benefits to members who joined a fund before 1 July 2014 and were covered in respect of that insured benefit before 1 July 2014, or to the provision of benefits under an approval that has been granted. This may require certain amendments to be made to the fund rules, or the rules may be taken to be amended (see regulation 4.07D of the SISR).
Amount you can claim
The proportion of an insurance premium a super fund may deduct depends on the type of insurance policy. The types of insurance policies are:
The deduction paid by the trustee of a complying super fund does not need to be apportioned on account of the fund deriving non-assessable income.
Insurance policies other than whole-of-life or endowment
For insurance policies that are not whole-of-life or endowment policies, you can claim:
- the part of a premium that is specified in an insurance policy as being wholly for the liability to provide certain death, terminal medical condition or disability benefits for fund members
- the proportion of the premium specified in Table 1 below as being attributable to the liability to provide death or disability super benefits for fund members
- for a policy that is not a whole-of-life or endowment policy
- 30% of the part of an insurance policy premium that is specified in the policy as being for a distinct part of the policy that would have been a whole-of-life policy if it had been a separate policy
- 10% of the part of an insurance policy premium that is specified in the policy as being for a distinct part of the policy that would have been an endowment policy if it had been a separate policy.
For insurance that provides… |
a fund can deduct… |
|---|---|
Total and permanent disability (TPD) any occupation cover (see note 1) |
100% |
TPD any occupation cover with one or more of the following inclusions:
|
100% |
TPD own occupation cover (see note 2) |
67% |
TPD own occupation cover with one or more of the following inclusions:
|
67% |
TPD own occupation cover bundled with death (life) cover |
80% |
TPD own occupation cover bundled with death (life) cover, with one or more of the following inclusions:
|
80% |
Whole-of-life and endowment insurance policies
For whole-of-life and endowment insurance policies, you can claim:
- 30% of the premium for a whole-of-life policy if all the individuals whose lives are insured are members of the fund
- 10% of the premium for an endowment policy if all the individuals whose lives are insured are members of the fund.
See also:
- ATO ID 2009/100 Complying superannuation fund: deductibility of premiums on 'whole of life policy' – subsection 295–465(1) of the ITAA 1997
- TR 2012/6 Income tax: deductibility under subsection 295–465(1) of the Income Tax Assessment Act 1997 of premiums paid by a complying superannuation fund for an insurance policy providing Total and Permanent Disability cover in respect of its members
Anti-detriment payment
The anti-detriment deduction will no longer be available for lump sum death benefits where the member died on or after 1 July 2017. A transition period will apply for two years to allow for delays in the payment of a lump sum death benefit where a member has died before 1 July 2017. However, from 1 July 2019, the anti-detriment deduction will no longer be available for all lump sum death benefits paid after this time, even where the member died before 1 July 2017.
See also:
- Remove the anti-detriment provision in respect of death benefits from super
A specific deduction that pays an anti-detriment paymentFootnote45 following the death of a member is available to the trustee of a complying super fund. However, as not all APRA-regulated funds provide an anti-detriment payment, whether the fund will provide the payment depends on the rules of the fund. An anti-detriment payment is an additional lump sum payment that can be made from a complying super fund on the death of a member to a:
- trustee of the deceased estate
- spouse or former spouse of the deceased
- child (including an adult child) of the deceased.
The deduction in respect of an anti-detriment payment is not available where the death benefit is paid as an income stream.
The payment increases the deceased member’s lump sum death benefit to negate the effect of tax on contributions paid while the member's benefit was accumulating in the fund.
A complying super fund which pays this increased amount may claim the deduction (calculated using the formula below) from its assessable income in the year in which the lump sum death benefit is paid. The amount the complying super fund can deduct using the formula in the tax lawFootnote46 is calculated as:
- Tax saving amount ÷ low tax component rate
Tax saving amount is the amount by which the lump sum death benefit is increased or is not reduced, so that the amount of the lump sum is the amount the fund could have paid if no tax were payable on assessable income included in contributions made to the fund.
Low tax component rate is the rate of tax imposed on the low tax component of the fund's taxable income for the year (i.e. 15%)Footnote47.
The records of some APRA-regulated super funds do not track the effect of fund tax on the accounts of individual members. In order to determine the effect of fund tax on the accounts of individual members, the fund would have to reconstruct those accounts from its records over the membership period. ATO ID 2010/5 Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit provides an alternative method that may be used in these circumstances.
If the lump sum payment is made through the estate of the deceased member, the amount of the deduction available depends on the extent to which a spouse, former spouse or child of the deceased is expected to benefit from the estate.
To ensure this claim is made correctly, trustees must claim the deduction in the income year in which the lump sum death benefit is paid. The lump sum death benefit should be paid as soon as practicable following the death of the member.
The deduction in respect of an anti-detriment payment does not need to be apportioned on account of the super fund deriving non-assessable income.
See also:
- ATO ID 2010/5 Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit
- Remove the anti-detriment provision in respect of death benefits from super
- Actuaries Institute Professional Standard 405 – Cost of death and disability benefits in super fundsExternal Link – 1 July 2016
The following ATO Interpretative Decisions (ID) provide guidance on some of the issues regarding the calculation of the deduction:
- ATO ID 2007/219 Deduction for increased amount of superannuation lump sum death benefit – the ATO accepts an alternative method to calculate an approximate tax saving amount so as to give effect to the intention of section 295–485 of the ITAA 1997
- ATO ID 2008/111 Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit – earnings foregone – in calculating the 'tax saving amount' for the purposes of paragraph 295–485(1)(b) of the ITAA 1997, a fund trustee can take into account the earnings that would have accrued if no tax had been imposed on contributions included in assessable income under Subdivision 295–C of the ITAA 1997 or under former section 274 of the ITAA 1936
- ATO ID 2008/112 Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit – expenses in relation to contributions – in calculating the 'tax saving amount' for the purposes of paragraph 295–485(1)(b) of ITAA 1997, a fund trustee is not required to take into account expenses that are deductible against the assessable income of the fund
- ATO ID 2010/5 Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit – alternative method of calculation accepted by the ATO
- ATO ID 2012/10 Income Tax: anti detriment payments paid by a complying superannuation fund to a trustee of a deceased estate – anti-detriment payments paid by a complying super fund to a trustee of a deceased estate
- Footnote 33
- Section 8–1 of the Income Tax Assessment Act 1997.
- Footnote 34
- These costs are fully deductible under the general deduction provision (section 8–1) because section 295–95 of the Income Tax Assessment Act 1997 provides that 'all contributions' are considered assessable income for the purpose of the deduction provisions in the income tax Acts. Therefore, any distinct and severable costs incurred in obtaining contributions will be fully deductible.
- Footnote 35
- Taxation Ruling TR 2016/3 Income tax: deductibility of expenditure on a commercial website sets out the Commissioner's views on the deductibility of expenditure incurred in acquiring, developing, maintaining or modifying a website for use in carrying on a business, including expenditure relating to domain names.
- Footnote 36
- Superannuation law includes obligations under the Financial Sector (Collection of Data) Act 2001 and the Corporations Law. See ‘regulatory provision’ in section 38A of the Superannuation Industry (Supervision) Act and Regulations 1993.
- Footnote 37
- If financial accounts or records prepared in complying with income tax obligations are subsequently used for other purposes (eg complying with super law obligations), the expenses associated with the preparation of those financial accounts or records are still fully deductible under section 25–5 of the Income Tax Assessment Act 1997 (see Taxation Ruling TR 2004/2 Income tax: whether expenses incurred obtaining valuations for consolidation are deductible under section 8-1 of the Income Tax Assessment Act 1997).
- Footnote 38
- Section 8–1 of the Income Tax Assessment Act 1997.
- Footnote 39
- Section 25–5 of the Income Tax Assessment Act 1997.
- Footnote 40
- Subsection 25–5(4) of the Income Tax Assessment Act 1997.
- Footnote 41
- Section 25–5 of the Income Tax Assessment Act 1997.
- Footnote 42
- Section 26-5 of the Income Tax Assessment Act 1997.
- Footnote 43
- Table item 3 in subsection 295–490(1) of the Income Tax Assessment Act 1997.
- Footnote 44
- Section 295–465 of the Income Tax Assessment Act 1997.
- Footnote 45
- Section 295-485 of the Income Tax Assessment Act 1997.
- Footnote 46
- Subsection 295–485(3) of the Income Tax Assessment Act 1997.
- Footnote 47
- Section 26 of the Income Tax Rates Act 1986.