Did you know using the actuarial percentage to claim a deduction on fund expenses might no longer be fair and reasonable if the fund has deemed segregation?
Whilst the superannuation reforms did not change the principles around deductibility of expenses you do need to be aware of how the new rules for calculating exempt current pension income (ECPI) might change the method used to claim a deduction on expenses that need to be apportioned.
An SMSF can claim a deduction on eligible expenses to the extent they were incurred in producing assessable income. For expenses that need to be apportioned, due to being incurred on assets producing both assessable and exempt income, one fair and reasonable method for determining the deductibility of general expenses used by many practitioners has been a deductibility proportion of (1 – actuarial exempt income proportion).
However in light of the changes to how actuaries calculate the exempt income proportion this may no longer always be appropriate. If a fund has periods where, in the ATO view, assets are deemed to be segregated pension assets, actuaries must exclude those assets from the actuarial calculation. The exempt income proportion would no longer take into account all fund liabilities over the income year where the fund has periods of deemed segregation.
This means that (1 – actuarial exempt income proportion) for funds with deemed segregation does not allow for periods where the fund was solely producing exempt income, and will overstate the fair and reasonable deductibility of expenses.
The information in this document is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.