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There 2 methods to apply the exempt pension income and allocation of deductible and non deductible expenses .
1) Strictly applying the actuarial certificate percentage to income and expenses – easy to verify in an audit!!! Agrees to the % split per actuarial certificate - ( the one I like in audits).
2)ATO method – that applies the ATO ruling – this method the software magically calculates the deductible and non deductible expenses – which is different to the Actuarial certificate. How do you check the apportionment of deductions in this method?
Hi Peter
Thanks, agreed the 2 methods are the simple method and the ATO method as per TR 93/17.
The formula is as follows for general expenses for the ATO method:
General administrative expenses x (Assessable income / total income)
That is you have to apply the formula to the amount calculated to see if it is correct.
The main difference is that the income of Fund includes contributions (CC & NCC) & rollovers in the calculation.
Assessable income includes assessable income (excluding ECPI), contributions (CC & NCC) & rollovers.
Total income includes assessable income plus exempt income plus non assessable income.
Example - Fund has $2,000 in accounting expenses & has actuarial certificate showing 80% ECPI.
Fund income = $20,000 dividends & rollovers of $200,000
Step 1: Assessable income = contributions (CC & NCC) + rollovers + assessable investment income - exempt pension income
= $0 + $200,000 + $20,000 - $16,000 = $204,000
Step 2: Total income = assessable income + exempt pension income
= $204,000 + $16,000 = $220,000
Step 3: General administrative expenses x (Assessable income / total income)
= $2,000 x (204,000/$220,000)
= $1,854.
Deductible expenses = $1,854 (92.7% of $2,000)
Non-deductible expenses = $146 (7.3% of $2,000)
The ATO method would normally create a larger tax deduction when a Fund has received contributions and or rollovers in the year.
Thanks
SMSF AAA