A number of self-managed super fund (SMSF) trustees may be under-claiming valuable tax deductions according to the SMSF Professionals' Association of Australia (SPAA).
According to the technical director of SPAA, Peter Burgess, discussions with industry players following the recent release of an Australian Taxation Office (ATO) decision had lead SPAA to conclude that a number of SMSF trustees had not necessarily been taking full advantage of tax deductions that they were legally entitled to claim.
"In some cases, this has resulted in funds paying hundreds of dollars extra of tax a year, which over the course of a few years, quickly adds up to a substantial amount of money," he said. "The ATO decision (issued in May) says that super funds are entitled to include the total value of all contributions (not just taxable contributions) and rollovers received during the income year when determining the proportion of a general administration expense that is attributable to gaining or producing the fund's assessable income – and therefore the proportion of the expense that can be claimed as a tax deduction."
The relevance, according to Burgess, was in situations where the fund may have some exempt income due to members being in both in the accumulation and pension phase.
"As the fund has earned some exempt income, it is not entitled to a deduction for the full amount of the general administrative fee," he said. "Instead, the fund is required to work out the proportion of the general administrative expense that is attributable to gaining or producing the fund's assessable income to be deducted from the fund's assessable income.
"It is common practice for SMSF trustees to only include the value of taxable contributions in the fund's assessable income total when calculating the proportion of general administrative expenses that can be claimed as a tax deduction," Burgess continued. "However, this ATO decision makes it clear that the full amount of any contributions or rollovers received by the fund during the income year can be treated as assessable income."
Burgess said that by including the full value of contributions and rollovers, a higher proportion of the general administrative fee could then be claimed as a deduction versus what would be the case if rollovers and non-taxable contributions, such as non-concessional contributions, were excluded.
"Based on our own observations, it is common practice for many SMSFs to do the latter, which means they may have been under-claiming tax deductions for general administrative expenses where they have members both in the accumulation and pension phase," he said.
Burgess said that SPAA was now urging practitioners to review their current tax calculation programs and processes to ensure their SMSF clients were not under-claiming tax deductions.
