Calculating Non Deductible expenses for Partly Pension Funds – Simple Fund 360 Knowledge Centre

Why calculate non-deductible expenses?

Trustees and administrators of SMSFs should be aware of the interaction of Taxation Ruling 93/17 - Income tax deductions available to superannuation funds, which deals with the apportionment of expenditure. Briefly, the ruling specifies that expenditure incurred solely in gaining or producing exempt income is not deductible and that expenditure incurred partly in producing assessable income and partly in gaining exempt income must be apportioned. TR 93/17 provides several methods of how apportionment of deductible and non-deductible expenditure can be calculated. The correct method for apportioning expenditure depends on the circumstances of the fund.

Deductible and Non-deductible expenses

Users can specify a percentage for General and Investment Expenses in Fund Pension Policies.

General and Investment expenses can be apportioned using one of the following three options:

User Specified - This allows you to enter the percentage you have calculated for the non-deductible proportion.
Use Actuarial % - The actuarial percentage will be used to calculate the non-deductible proportion.
Use ATO Formula - During the Create Entries process, the formula prescribed in TR 93/17 will be used to calculate the non-deductible proportion

Details of the calculation are displayed in the Create Entries Report after you create entries.

Which option do I use?

TR 93/17 States:

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...methods of apportionment are...approaches which are generally accepted as fair and reasonable methods for apportioning the part of a superannuation fund's expenditure which is not divisible into two distinct and severable parts, one devoted to gaining assessable income and one devoted to producing exempt income. However, it must be emphasised that these are not the only methods of apportionment which can be used. Other methods are acceptable provided it can be demonstrated that they give a fair and reasonable assessment of the extent to which the outlay relates to assessable income.

ATO Formula

As per TR 93/17 the ATO formula is calculated as:

General expenses

A (total assessable income): member contributions + rollover superannuation benefits + investment income − exempt pension income
B (total income): total assessable income + exempt pension income

Investment expenses

A (total investment assessable income): total investment income − exempt pension income
B (total investment income): all investment income, such as net capital gains and gross trust distributions

Non-deductible amount

The result appears as SMSF Non Deductible Expenses in the Create Entries Summary for each segment.

Reconciliation tip: The Create Entries Report provides a breakdown of the application of the above formula.