SMSFs seeking to apportion their deductible expenses have a number of methodologies they can use, but to prevent scrutiny from the ATO they should not swap between them, according to an SMSF expert.
Deloitte superannuation, SMSF and retirement savings partner Liz Westover said after distinguishing between what is assessable and non-assessable income when claiming deductions, SMSFs should remain consistent in the way they apportion expenses.
“There are a range of options around this and not necessarily a defining answer, but you must have a fair and reasonable basis for which you are apportioning expenses,” Westover said during a presentation at The Tax Institute Superannuation Intensive event today.
She said an example of the application of a fair and reasonable basis could be seen when claiming exempt current pension income.
“With that claim and where we have an actuarial certificate, most people will take the percentage they applied to the income and use that same percentage to apply to the expenses, and that is probably a fair and reasonable basis to apportion your deductions,” she said.
“At other times we can look at other methods and the first stop should always be identifying whether or not you have distinct and severable expenses in relation to the fund.
“Is there an expense that I can clearly attribute to either assessable or non-assessable income and in most cases that is where I should direct my ability to claim the deduction.”
She noted ATO Tax Ruling (TR) 93/17 also gave examples of methodologies to use in relation to investment expenses where they might be apportioned based on the fund’s assessable investment income over its total investment income.
In regards to general administration expenses, she said TR 93/17 allowed for apportioning based on assessable income over total income as opposed to investment income.
“There is no necessarily right answer on this one. The distinct and severable method is the preferred method and then a firm and reasonable basis on which to apportion expenses from thereon in,” she said.
“However, if you choose a particular method, then you should stick with it.
“You should not chop and change the methodology you use from year to year and the reason for that is if you do have to change it, then it raises questions as to whether or not it was the appropriate method to use in the first place.
“The ATO could potentially question your methodology if you’re chopping and changing all the time because one method may not seem appropriate each year.”
