A: The short answer to your question is that expenses that relate to the TTR pension will be taken into account in determining the expenses of the fund which are tax deductible.

The changes to superannuation which commenced on 1 July 2017 now treat TTR pensions differently depending on whether the TTR is considered to be ‘in retirement phase’ or ‘not in retirement phase’.  This will have an impact on the calculation of the taxable income in the fund that is tax exempt and whether the fund’s expenses are proportionately tax deductible.

First let’s consider the fund assuming your wife has not met the retirement conditions and continues to work.  In that situation the TTR pension that is being paid to your wife is ‘not in retirement phase’ which means the income earned by the fund on investments supporting the TTR plus any income earned on fund investments is taxed at 15%.

Whether the fund uses the segregated basis or the proportional basis to determine its exempt pension income will determine which expenses are tax deductible.  If the segregated basis is used any expenses that relate to the fund investments that are in accumulation phase and ‘not in retirement phase’ will be tax deductible to the fund plus other expenses such as the return lodgement fee payable to the ATO.  More information about tax deductible expenses for superannuation funds can be found in Taxation Ruling TR 93/17 which can be accessed from:

http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9317/NAT/ATO/00001&PiT=99991231235958

Now let’s consider the fund assuming your wife has met the retirement conditions and notified the fund of that situation.  If that’s the case, then the TTR will be treated as being in retirement phase and any income earned from the fund on assets supporting the TTR pension and the account-based pension will be tax exempt.

If the TTR and account-based pension is all that is being provided by the fund and no fund member has a total balance in superannuation of more than $1.6 million the fund will be treated as a segregated fund and the income will be tax exempt.  In these circumstances an actuarial certificate will not be required.  However, if a member of the fund has an accumulation account in addition to the pensions being provided to members or at least one member has a total superannuation balance of more than $1.6 million, the fund may be required to use the proportional basis and an actuarial certificate will be necessary.

I notice that you think the fund is likely to require an actuarial certificate for the fund.  An actuarial certificate is required only where the fund uses the proportional method (also known as the unsegregated method).  This is required if the investments of the fund are pooled and each of the fund members has a total balance in superannuation of no more than $1.6 million or at least one member of the fund has a total superannuation balance in all superannuation funds of at least $1.6 million.

When determining the exempt income of the fund the actuary considers the proportion of the fund investments in retirement phase which is averaged over the year.  The fund’s accountant will determine which fund expenses are fully deductible, apportioned or not deductible when completing the fund’s income tax and regulatory returns.  Those expenses that relate to the TTR pension which is not in retirement phase and other relevant expenses will be deductible to the fund.