Show at Y the exempt current pension income of a complying fund or PST.
The income of a complying superannuation fund or PST derived from assets held to provide for 'current pension liabilities', and which would otherwise be assessable income, is exempt from income tax (unless it is non-arm’s length income or assessable contributions). This income has been included as part of the total shown at W. Therefore, to ensure the income derived from assets held for current pension liabilities is not taxed, it is necessary to deduct the exempt amount at Y from W to calculate V Total assessable income.
Do not reduce the exempt income shown at Y by the amount of expenses incurred in deriving that exempt income. Doing so will understate the amount of exempt current pension income and will result in some of that income being subject to tax.
Expenses incurred in gaining or producing exempt income are not deductible; those expenses should not be shown anywhere at Deductions item 11.
For treatment of expenses incurred wholly or partly in producing assessable income, see Section C Deductions item 11.
Current pension liabilities are the fund's currently existing liabilities to pay superannuation income stream benefits.
There are two methods by which the trustee of a fund can determine the exempt income shown at Y. Either one method or both methods may be used depending on the circumstances. Different conditions for claiming the exemption apply, depending on the method used.
A fund is entitled to a franking credit tax offset even where the franked dividends are part of exempt current pension income.
First method: Income from segregated assets used to meet current pension liabilities
If a complying fund segregates certain assets to provide for current pension liabilities, the income from those assets is exempt from income tax (section 295-385 of the ITAA 1997).
Non-arm’s length income and assessable contributions cannot be exempt from income tax under the exempt current pension income rules.
The market value of the assets that the fund has segregated to provide for current pension liabilities cannot exceed the balance of the accounts that pay the income streams.
Is an actuarial certificate required?
An actuarial certificate is not required if:
- assets that provide for current pension liabilities are segregated at all times during the income year, and
- the only superannuation income stream benefits being paid from the segregated assets are allocated pensions, market linked pensions and account based pension types (regulation 295-385.01 of the Income Tax Assessment Regulations 1997).
An actuarial certificate is required if the fund paid any other type of superannuation income stream. If an actuarial certificate is required, it must be for all the superannuation income streams that the fund paid (even if some of the income streams are allocated pensions, market linked pensions or account based pensions).
If the trustee requires an actuarial certificate, this must be obtained before the date of lodgment of the fund’s tax return.
Second method: Income from unsegregated assets used to meet current pension liabilities
If a complying fund's income is derived from assets that are not segregated the fund must get an actuarial certificate for each year they claim exempt current pension income, regardless of the type of superannuation income stream benefit being paid. The actuarial certificate will show the proportion that the fund will apply to its income (other than excluded income) to determine its exempt income. For the purpose of calculating exempt income using this method, non-arm's length income, assessable contributions, income derived from segregated non-current assets and income exempted under the first method are excluded from the fund's income (subsection 295-390(2) of the ITAA 1997).
An actuarial certificate is required under subsection 295-390(4) of the ITAA 1997.
An actuarial certificate is also required if the fund has segregated non-current assets (subsection 295-395(1) of the ITAA 1997).
Pooled superannuation trusts
Pooled superannuation trusts (PSTs) are entitled to an exemption for that portion of otherwise assessable income that is attributable to the current pension liabilities of unit holders that are complying funds and that could otherwise be claimed as exempt income by the complying fund if the income was derived directly by the complying fund. Non-arm's length income, and assessable income transferred by a fund to the PST under section 295-260 of the ITAA 1997, is excluded from the exemption.
Subsection 295-400(1) of the ITAA 1997 sets out a formula for calculating the proportion of otherwise assessable income that is exempt if the fund (unit holder) segregates current pension assets. Alternatively, the trustee of a PST can choose a different amount as exempt income of the PST by applying subsection 295-400(3) of the ITAA 1997.
Example 4a: Calculating exempt current pension income for a fund in 'full pension phase'
The ABC Super Fund earned $100,000 in interest and paid $1,000 in bank fees. 100% of the fund's assets were held to provide for current pension liabilities.
The fund shows:
- $100,000 interest as income at C Gross interest item 10
- $100,000 as exempt current pension income at Y Exempt current pension income item 10.
The fund cannot claim the $1,000 in bank fees as a deduction because they were incurred in earning the exempt current pension income.
Example 4b: Calculating exempt current pension income by the 'unsegregated assets' method
The DEF Super Fund earned $60,000 in interest and paid $500 in bank fees. Applying the second method for calculating exempt current pension income, the fund (having obtained an actuarial certificate) determines that 80% of its income is exempt current pension income.
The fund shows:
- $60,000 interest as income at C Gross interest item 10
- $48,000 (that is, 80% of $60,000) as exempt current pension income at Y Exempt current pension income item 10
- a deduction of $100 (that is, 20% of $500) for bank fees at A Interest expenses within Australia item 11.
The fund cannot claim the remaining bank fees of $400 (that is, 80% of $500) as a deduction because they were incurred in earning the exempt current pension income.
Example 4c: Applying tax losses for a fund with exempt current pension income
The GHY Super Fund earned $30,000 in interest and paid $200 in bank fees. Applying the second method for calculating exempt current pension income, the fund (having obtained an actuarial certificate) determines that 30% of its income was exempt current pension income. The fund has $10,000 in tax losses carried forward from the previous year.
The fund shows:
- $30,000 interest as income at C Gross interest item 10
- $9,000 (that is, 30% of $30,000) as exempt current pension income at Y Exempt current pension income item 10
- a deduction for bank fees of $140 (that is, 70% of $200) at A Interest expenses within Australia item 11.
The fund cannot claim the remaining bank fees of $60 (that is, 30% of $200) as a deduction because they were incurred in earning the exempt current pension income.
The $10,000 in tax losses carried forward must be reduced by net exempt income of $8,940 (that is, $9,000 of exempt income less bank fees of $60 incurred in earning exempt income).
The fund shows:
- a deduction for tax losses of $1,060 (that is, $10,000 less $8,940) at M Tax losses deducted item 11
- tax losses carried forward to later years at U Tax losses carried forward to later income years item 13 as zero.
The losses used in this example refer to tax losses rather than capital losses. For more information, see Section E: Losses.