ATO Interpretative Decision
ATO ID 2008/112
Income Tax
Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit - expenses in relation to contributionsFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
In calculating the 'tax saving amount' for the purposes of paragraph 295-485(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), is a fund trustee required to take into account expenses that are deductible against the assessable income of the fund?
Decision
No. 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.
Facts
The taxpayer is a complying superannuation fund.
The fund only provides accumulation benefits. Accordingly, member benefits are determined by reference to the sum of contributions and investment income credited over the period of membership, less expenses such as fees, taxes and insurance premiums.
Taxable contributions are included in the assessable income of the fund. The expenses of the fund include amounts that are either directly or indirectly incurred in relation to the taxable contributions.
In calculating the tax saving amount for the purposes of section 295-485 of the ITAA 1997, the fund does not reduce taxable contributions by the deductible expenses in determining the tax paid on the contributions.
Reasons for Decision
Section 295-485 of the ITAA 1997 allows a deduction to a complying superannuation fund or a complying approved deposit fund when:
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- it pays a superannuation lump sum because of the death of a person to the trustee of the deceased's estate or an individual who was a spouse, former spouse or child of the deceased at the time of death or payment; and
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- it increases the lump sum by an amount, or does not reduce the lump sum by an amount (the tax saving amount ), so that the amount of the lump sum is the amount that the fund could have paid if no tax were payable on amounts included in assessable income under Subdivision 295-C of the ITAA 1997 and former section 274 of the Income Tax Assessment Act 1936 (ITAA 1936).
The provision requires the fund to determine the amount that would have been paid as a superannuation lump sum if contributions were not included in the assessable income of the fund.
Section 295-485 of the ITAA 1997 is a rewrite of section 279D of the ITAA 1936. The Explanatory Memorandum to Taxation Laws Amendment (Superannuation) Bill 1989 states in relation to section 279D of the ITAA 1936 that the provision:
... is intended to ensure that the level of death benefits that can be paid from a complying superannuation fund ...are not reduced as a result of tax on taxable contributions.
Similarly the Explanatory Memorandum to Tax Laws Amendment (2007 Measures No. 4) Bill 2007 states in relation to section 295-485 of the ITAA 1997 that:
... the increased amount is equal to the tax paid for contributions included in the assessable income of the superannuation entity.
The extracts from the Explanatory Memorandums above make it clear that the intent of the deduction under section 295-485 of the ITAA 1997 (being a rewrite of the former section 279D of the ITAA 1936) is to ensure death benefit payments are not reduced as the result of the introduction of tax on contributions.
The deductible expenses of the fund include expenses incurred either directly or indirectly in relation to the taxable contributions of the fund. However, section 295-95 of the ITAA 1997 (for the 2007-08 income year onwards) and section 277 of the ITAA 1936 (for earlier income years) provide that in determining whether an expense is deductible, contributions should be taken to be assessable income of the fund, whether or not the contributions are actually included in assessable income. Accordingly, the deductible expenses of the fund in relation to contributions would be deductible whether or not the contributions were assessable. The deductible expenses therefore should not affect the calculation of the 'tax saving amount'.
Accordingly, to satisfy the intent of section 295-485 of the ITAA 1997, the calculation of the effect of tax on the contributions received by the fund trustee should be done without regard to expenses, including expenses incurred either directly or indirectly in relation to those contributions.
Therefore, in calculating the 'tax saving amount' for the purposes of paragraph 295-485(1)(b) of the ITAA 1997, the fund trustee is not required to take into account expenses that are deductible against the assessable income of the fund.
Date of decision: 3 July 2008Year of income: Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1936
section 274
section 277
section 279D
Subdivision 295-C
section 295-95
section 295-485
Paragraph 295-485(1)(b) Related ATO Interpretative Decisions
ATO ID 2006/290 (Withdrawn)
ATO ID 2007/219
ATO ID 2008/111
Other References:
Explanatory Memorandum to Taxation Laws Amendment (Superannuation) Bill 1989
Explanatory Memorandum to Tax Laws Amendment (2007 Measures No. 4) Bill 2007
Keywords
Superannuation fund expenses
Superannuation fund potential detriment payments
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 3 July 2008 | Original statement |
| 9 August 2019 | Archived |