Private ruling: allocated pension
Published: April 2012
Ruling period: Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2007

Ruling: Q1: Are you entitled to a deduction for financial consultancy fees incurred to set up an allocated pension? | A1: No. | Q2: Are you entitled to a deduction for financial consultancy fees incurred to maintain an allocated pension? | A2: No.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: · the application for private ruling, and · the documents provided in response to a request for further information. You were advised by your financial consultant to set up an allocated pension to minimise your tax liability. You have paid adviser's service fees. The financial advisor fees are deducted from your allocated pension account prior to you receiving income from the allocated pension. You are not billed separately by the managed fund for the financial advisor fees.

Relevant legislative provisions: Income Tax Assessment Act 1926 section 27H and | Income Tax Assessment Act 1997 section 8-1.

Reasons for decision: Summary: Question 1 Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a taxpayer to deduct from their assessable income any loss or outgoing to the extent it is incurred in gaining or producing assessable income. In TD 95/60 the Commissioner considers that fees for drawing up an investment plan are not deductible for income tax purposes. This is because the expense is not incurred in the course of gaining or producing assessable income. The expense is incurred at a point too soon to be considered part of the income earning process. The Commissioner further considers that such expenditure is incidental and relevant to the acquisition of an investment, and as such is considered capital in nature. It can be determined that the establishment fees you incurred were a fee paid for drawing up your allocated pension. The expense will not be deductible, as the expenditure was not incurred in the course of gaining or producing of assessable income. It can also be argued that the expense has been incurred at a point too soon and therefore not part of an income producing process. In conclusion, the establishment fees will not be an allowable deduction pursuant to section 8-1 of the ITAA 1997. Question 2 Taxation Determination TD 95/60 provides that on-going management fees are expenditure incurred in servicing an investment portfolio and therefore allowable deductions under section 8-1 of the ITAA 1997. An allocated pension payment is included in a taxpayer's assessable income under section 27H of the Income Tax Assessment Act 1936 . The amount of pension to be included in a taxpayer's assessable income is the yearly amount of the pension payment that is withdrawn from their available allocated pension account balance after the annual management fees have been debited. In your case, the on-going management fees have been taken into account before the pension payment is made to you. You have therefore only been assessed on the net amount of the pension, which is after the management fees have been taken into account. Therefore, you are not entitled to a further deduction for on-going management fees under section 8-1 of the ITAA 1997.

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