ap_ann03

Deductible Amount of an Annuity

You might not have to include all the annuity in your assessable income - Deductible amount

Undeducted purchase price of an annuity - you can deduct it from the annuity income

You might not have to include the entire annuity in your assessable income - you can deduct the Deductible Amount!

So what is the Deductible Amount?

It's really just the Undeducted Purchase Price of the annuity!

Because a lot of superannuation plans require their members to contribute towards the cost of providing the eventual pension, they attract the operation of the latter part of section 27H(1) - can you see why?

Section 27H(1) says income from annuities is included in assessable income, but the deductible amount of a purchased annuity is excluded.

So, if you can work out the deductible amount of an annuity, you can deduct it from the pension income.

It is defined at section 27H(2).

deductible amount is

*Undeducted Purchase Price of annuity*	Less	any amount payable when the annuity ceases (we call this the residual capital value)
*term over which annuity will be paid,* or can reasonably be expected to be paid

If you wish to refer to the legislation, the formula in section 27H(2) can be made simpler if we ignore the A and C factors.

This leaves 2 factors

undeducted purchase price (B)

relevant number (D)

To discover the meaning of undeducted purchase price turn to section 27A - the definitions section for the eligible termination payments as well as annuity provisions.

The meaning of undeducted purchase price depends on when the annuity was first paid

Before we look more closely at the meaning of undeducted purchase price of an annuity, let's think about the expression purchase price of an annuity. It means

any payments or contributions,

made by any person other than the employer (section 27A(1) and 5C exclude contributions of an employer)

to purchase the annuity.

So now for the definition of undeducted purchase price of an annuity .You will notice that the definition in section 27A is in 2 parts

Purchase price paid on & after 1/7/94

If the pension is a

Rebatable eligible termination payment annuity (a pension which has been purchased with the proceeds of a lump sum eligible termination payment and which attracts a tax rebate when returned as income)

Rebatable superannuation pension (Which attracts a tax rebate when returned as income)

then the undededucted purchase price is

the person's post-June 1983 undeducted contributions

Purchase price paid before 1/7/94

or, if the annuity was

first payable after 1/7/94 and is not a rebatable ETP annuity or rebatable superannuation pension, or

is a pension subject to a section 159SS notice (a superannutation contribution on which the tax liability has been transferred from the fund to the contributor - refer CCH Master Tax Guide paragraph 11-305), or

is a pension purchased with rolled over commutation ETP's (a pension which has been purchased with an eligible termination payment which has been rolled over - refer CCH Master Tax Guide paragraph 11-035)

then the undededucted purchase price is

the person's post-June 1983 undeducted contributions PLUS

the amount of the purchase price that was paid before 1 July 1983 which

Not been allowed as a deduction.

Not been allowed as a rebate.

Not been included in the rebatable amount. (This is the total of rebatable expenditure which used to form the basis for allowing the concessional rebate in respect of life assurance, self education, medical expenses, etc - it's only remnant now is the medical expenditure claim, which can only be allowed in respect of expenses greater than $1000)