Bernard Finnegan and Christopher Stasos discuss recent ATO guidance on 'fair and reasonable' apportionment of superannuation fund expenses.
The Australian Taxation Office (ATO) has released the long awaited addendum to TR 93/17: Income tax deductions available to superannuation funds.
Overall, the addendum is broadly similar to the previous iteration of the ruling but is more prescriptive and provides further detail on the acceptable expense apportionment methodologies regarding exempt income.
The most notable change is the increased emphasis on the concept of 'fair and reasonable' as a fundamental apportionment principal.
A blind application of the formulae stated in the ruling will not necessarily result in such an outcome; that is they are not 'black-line' safe harbours. While the concept of 'fair and reasonable' is intended to operate on an objective basis, the issue facing funds will be determining how their views on 'fair and reasonable' align with the views of the ATO in different scenarios.
The addendum provides high-level examples to assist determine what constitutes an 'acceptable' versus 'unacceptable' method of apportionment, as well as consideration of expenses of a 'capital' versus 'revenue' character. The examples are relatively simplistic and it is questionable how helpful they will be in 'greyer' circumstances.
Other features of the ruling include:
The addendum will apply to years commencing before and after the date of issue. However, the ATO notes that current practices in relation to the treatment of administrative expenses incurred as a result of a merger that derive from views different from those expressed in the addendum may be examined only from 1 July 2016.
As this remains an ATO focus issue, it is important that superannuation funds revisit their expense apportionment methodologies in light of this addendum well before preparation of their 2017 year tax return. This should ensure they are well placed to undertake their analysis effectively when the return is being prepared.