For SMSFs that incur general expenses from assets gaining or producing both Exempt Current Pension Income (ECPI) and assessable income in a given financial year, they may be eligible to claim a portion of the expenses as deductible. The Australian Taxation Office require that the apportionment of deductibility that is applied to general expenses is fair and reasonable. Section 8.1 of Taxation Ruling (TR) 93/17 sets out two methods that are to be considered a fair and reasonable approach. For guidance on how to calculate the general expense deduction using one of these two methods, you can refer to Act2’s calculators below.
Income ratio method
One method available under Tax Ruling 93/17 to calculate the general expense deduction is specified under section 8(2). This method, which Act2 refers to as the 'Income Ratio Method', can be calculated below.
Actuarial percentage method
Another method available under Tax Ruling 93/17 to calculate the general expense deduction is specified under section 8B which uses the tax exempt percentage on the actuary's certificate. The ATO considers it to be fair and reasonable to use the actuary’s tax-exempt percentage as a method in determining the deductibility of general expenses. This is because the actuary’s calculation is a daily weighted average of the unsegregated retirement phase liabilities divided by a daily weighted average of the unsegregated superannuation liabilities. This method, which Act2 refers to as 'Actuarial Percentage Method', can be calculated below.
It is important to be aware that there are some expenses that have a specific deduction provision applied to them that allows them to be fully or partially deductible. Expenses that are not eligible for a deduction include expenses that of a capital nature, private or domestic nature. To learn above how the general expense deduction is calculated you can refer to section 8 of the ATO's Tax Ruling 93/17
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