Making the most of super fund tax deductions

In May this year the Australian Taxation Office (ATO) issued an Interpretative Decision (ATO ID 2012/47) which flags the fact that all types of contributions, including rollovers from another fund, can be taken into account in calculating certain fund deductions. ATO ID 2012/47 serves as a useful reminder to SMSF advisers to ensure their clients make full use of that fact.

Broadly, as the ID explains, the tax law provisions related to superannuation fund deductions are modified for “contributions” made to a complying superannuation fund. Specifically, s 295-95(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that “all contributions” made to a complying fund are treated as if they were included in the fund’s assessable income for the purposes of working out the amount of any deductions (whether or not the contributions are actually included in the assessable income of the fund under the income tax law).

This is relevant because in accordance with the general deduction provisions in s 8-1 of ITAA 1997, a complying superannuation fund can generally only deduct from its assessable income an expense to the extent that it is incurred in gaining or producing its assessable income.

The term “contribution” is not defined in the tax law and is, therefore, given its ordinary meaning, having regard to the context and purpose of the provision in which it appears. The ATO concludes that, in the absence of a contrary legislative intention a roll-over superannuation benefit (other than an amount transferred between superannuation interests within the same superannuation plan) is a “contribution” for the purposes of s 295-95(1) of ITAA 1997. This is consistent with the view expressed in Taxation Ruling TR 2010/1 on superannuation contributions.

The ATO also concludes that a complying superannuation fund can deduct amounts incurred in obtaining all “contributions”, including non-assessable contributions (such as non-concessional contributions). This means that if the fund incurs expenses specifically related to obtaining contributions (including inter-fund rollovers and a single contribution regardless of the extent to which they are assessable), the ATO’s view is that these do not need to be apportioned for the purposes of the s 8-1 general deduction provisions. The full expense would be deductible.

Further, to the extent to which it is necessary for a fund to apportion losses or outgoings incurred in gaining or producing both assessable income and exempt income under the general deduction provisions in s 8-1, such as the administrative fee in the particular case dealt with in ATO ID 2012/47, all contributions are taken to be included in the fund’s assessable income when working out the deductible portion.

This can be illustrated with an example.


ABC Ltd as trustee for the ABC superannuation fund has $150,000 in accumulation phase assets and $300,000 in (segregated) pension phase assets.

The assessable investment income derived in relation to the accumulation phase assets in the 2011/12 year is $10,000. The income derived from the pension phase assets in 2011/12 is $20,000, which is exempt income.

In the same income year, the fund received employer contributions of $25,000, a rollover of $200,000 from another superannuation fund (consisting of a tax-free component and a taxable component — taxed element) and a non-concessional contribution of $450,000. The $25,000 contribution is included in the fund’s assessable income but the $200,000 rollover and non-concessional contribution are not.

This means that the fund has received the following amounts in the 2011/12 income year.

Assessable investment income $10,000
Assessable employer contribution $25,000
Non-assessable rollover $200,000
Non-concessional contribution $450,000
Exempt investment income $20,000
Total $705,000

The total assessable income of the fund is $35,000 and the total exempt income is $20,000.

In the 2011/12 year ABC Ltd paid a $3,000 fee to the fund’s administrator representing general administration expenses.

In the case of general administrative expenses relevant to the operation of the fund as a whole, the method of apportionment that is generally accepted for working out the amount that is deductible (as set down in Taxation Ruling TR 93/17) is as follows:

General administrative expenses x (Assessable income / Total income)

For the purposes of the above formula, “Assessable income” includes “all contributions” and (because of s 295-95(1)) “Total income” is the sum of assessable income (including “all contributions”) and exempt income.

In applying the above formula to the ABC superannuation fund, ABC Ltd is able to claim the following amount:

$3,000 x ($685,000 / $705,000) = $2,915

Without s 295-95(1), the $200,000 rollover and the $450,000 non-concessional contribution would not be included. The fee would, therefore, need to be apportioned between the assessable income of $35,000 and the exempt income of $20,000 and only $1,909 of the administration fees would be deductible (ie $3,000 x ($35,000/$55,000)).

In summary, the key points for SMSF advisers to note are:

  • A higher level of superannuation fund expenses is potentially deductible under the general deduction provisions than would be the case if all contributions were not considered assessable income for the purposes of the superannuation fund deduction rules.
  • For these purposes a rollover is considered a contribution.
  • All contributions are considered assessable for the purposes of determining the amount of an expense that is incurred in producing assessable income, regardless of whether the contributions are actually assessable or not.

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