ATO ID 2014/26: Deductibility of losses incurred on the disposal or redemption of 'traditional securities' by a complying superannuation fund
Date of decision: 29 July 2014
Year of income: Year ending 30 June 2012
Business line: Public Groups & International

Issue
Can a complying superannuation fund claim a deduction under section 70B of the Income Tax Assessment Act 1936 (ITAA 1936) for the full amount of a loss it incurred on the disposal or redemption of a traditional security where the traditional security is not a segregated current pension asset as defined in subsection 295-385(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and section 295-390 of the ITAA 1997 applies to exempt some of the income of the fund?

Decision
Yes. A complying superannuation fund can claim a deduction under section 70B of the ITAA 1936 for the full amount of a loss it incurred on the disposal or redemption of a traditional security where the traditional security is not a segregated current pension asset as defined in subsection 295-385(3) of the ITAA 1997 and section 295-390 of the ITAA 1997 applies to exempt some of the income of the fund.

Facts
A complying superannuation fund with current pension liabilities did not segregate any assets for the sole purpose of discharging those liabilities. Accordingly, the fund did not have any segregated current pensions assets as defined in section 295-385 of the ITAA 1997. As part of its investment strategy, the fund acquired various securities which were either redeemed or otherwise disposed of during the income year. Each security was a traditional security as defined in section 26BB of the ITAA 1936. At the time of disposal or redemption, the fund realised a loss in respect of some of the traditional securities.

Reasons for decision
Summary: Under section 295-385 of the ITAA 1997, a complying superannuation fund may set aside assets to be invested, held in reserve or otherwise dealt with for the sole purpose of enabling the fund to discharge all or part of its current pension liabilities; that is, its liabilities in respect of superannuation income stream benefits that are payable by the fund at that time. Assets that have been segregated for this purpose are known as segregated current pension assets. However, it is not mandatory for a fund to take steps to segregate assets under section 295-385. Under subsection 295-385(1) of the ITAA 1997 the ordinary income and statutory income of a complying superannuation fund for an income year that is derived from its segregated current pension assets is exempt from income tax. Where a fund has current pension liabilities but chooses not to segregate its assets, section 295-390 of the ITAA 1997 provides that, subject to certain conditions being met, a proportion of the ordinary and statutory income of a complying superannuation fund (other than income to which subsection 295-390(2) applies) is exempt from income tax. The fund must calculate the proportion of income that is exempt income using the statutory formula set out in subsection 295-390(3). Section 70B of the ITAA 1936 allows a deduction for a loss on the disposal or redemption of a traditional security in the income year in which the disposal or redemption takes place. However, the availability of the deduction is limited by a number of exceptions set out in subsections 70B(2A) to 70B(4). Subsection 70B(2A) of the ITAA 1936 provides that a loss on disposal or redemption of a traditional security made by a complying superannuation fund is not allowable as a deduction where the traditional security was a segregated current pension asset. However, section 70B of the ITAA 1936 does not provide for any particular treatment of a loss made by a fund in respect of a traditional security that is held by a fund that does not segregate its assets. Therefore, a complying superannuation fund that does not have segregated current pension assets is entitled to claim a deduction for the full amount of a loss on the disposal or redemption of a traditional security in the year in which the disposal or redemption takes place provided the conditions of section 70B of the ITAA 1936 are satisfied and none of the exceptions apply to the loss. This is the case even if section 295-390 of ITAA 1997 applies to exempt some of the income of the fund in that income year.

Legislative references: Income Tax Assessment Act 1936 section 26BB section 70B subsection 70B(2A) subsection 70B(4)
Related public rulings and determinations: TR 93/17 | TR 96/14 | TD 2009/14
Subject references: superannuation traditional securities segregated current pension assets expense apportionment deductions