Management/Administrative Fees

Is a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allowable to a taxpayer for management or administrative fees on an investment which have been deducted by a financial institution before a net amount is paid to the taxpayer?

Yes, a deduction under section 8-1 of the ITAA 1997 is allowable to a taxpayer for management or administrative fees on an investment which have been deducted by a financial institution before a net amount is paid to the taxpayer.

The taxpayer is entitled to receive an amount of income from a financial institution.

The taxpayer is charged annual management/administrative fees by the financial institution on their investment.

For convenience the financial institution deducts the amount of the fee from the amount that would have been otherwise payable to the taxpayer. No payments are made directly by the taxpayer to the financial institution.

When payments on the investment are made by the financial institution to the taxpayer the management/ administrative fees have already been deducted. The taxpayer therefore receives the net amount.

The taxpayer was entitled to receive the gross amount of the income earned on the investment from the financial institution. The gross amount is included in assessable income under section 6-5 of the ITAA 1997.

Deductions for management and/or administrative fees paid to a financial institution fall for consideration under the general provisions of section 8-1 of the ITAA 1997.

For the taxpayer to be entitled to a deduction under section 8-1 of the ITAA 1997 the taxpayer must have incurred the expenditure.

The meaning of 'incurred' is discussed in Taxation Ruling TR 97/7. The taxpayer had a presently existing liability to pay the fees. This liability was discharged when the amount was withheld by the financial institution from amounts otherwise payable to the taxpayer. The taxpayer has incurred the management/administrative fee expense and would be entitled to a deduction under section 8-1 of the ITAA 1997.