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Can you set me straight on your views on what is and isn’t apportioned when a fund has both assessable and non-assessable income please?
I consider the supervisory levy is not apportioned.
I believe the audit fee and all other types of expenditure are apportioned? However, I wanted get your thoughts on our fees to a fund, ie. where we do both accounting and taxation work in one bill. I’m having this discussion with my business partner now and I get his argument that the tax preparation part of our fees should be fully deductible (ie. Not apportioned because it’s a cost incurred to manage your tax affairs), whereas the accounting portion of our bills should be apportioned.
Could I get your thoughts please?
Hi Campbell
Thanks. Yes audit fees and other general deductions are apportioned if the Fund is in pension and accumulation mode. General deductions are those that do not have a specific deduction being allowed (such as tax affair costs / life insurance premiums).
Tax Ruling 93/17 states:
"6A. Expenditure that is deductible under section 25-5 does not need to be apportioned to the extent the fund gains or produces non-assessable income."
The normal approach is to not to apportion a deduction re costs re preparation / lodgement of the annual return including preparation of the financial statements, and also the supervisory levy as these are covered under section 25-5 of the ITAA. That is these expenses are allowed a specific tax deduction.
So re your query the Fund gets a full deduction for the tax (annual) return fees and also for the accounting fees (re the preparation of the financial statements).
To support this the ATO states at:
"Tax-related expenses
A specific deduction is allowable under section 25-5 of the ITAA 1997 for either:
an expense incurred in managing a fund’s tax affairs
complying with a Commonwealth tax law obligation imposed on the trustee.
You cannot deduct capital expenditure under this section. However, an expense is not a capital expense merely because the tax affair relates to a matter of a capital nature. For example, you may be able to deduct the cost of applying for a private ruling on whether you can depreciate an item of property under this section.
The following are examples of deductible tax-related expenses incurred in managing an SMSF’s income tax affairs and complying with income tax laws:
costs relating to the preparation and lodgment of the SMSF’s annual return, including the preparation of financial statements
actuarial costs incurred in satisfying income tax obligations. For example, to determine the amount of tax-exempt income (or exempt current pension income)."
The SMSF Association also has a good summary of the rules at:
https://www.smsfassociation.com/wp-content/uploads/2017/12/Common-fund-expenses-Dec-2017v1.pdf
Thanks
SMSF AAA