One important consideration we are asked concerning self-managed super funds (SMSF) is “Are the set-up costs such as the Trust Deed, tax deductible for the SMSF?”
In taxation ruling TR 93/17 the ATO gives a number of explicit examples of the sorts of expenses that are tax deductible to an SMSF; as follows:
- Actuarial costs;
- Accountancy fees;
- Audit fees;
- Costs of complying with Government regulations;
- Costs in connection with the calculation and payment of benefits to members (but not the cost of the benefit itself);
- Investment adviser fees and costs in providing pre-retirement services to members;
- Other administrative costs incurred in managing the fund.
- The fund’s annual lodgement fee, however a late lodgement penalty is not deductible;
- Legal expenses, although this usually depends on whether the expenses are of a capital or revenue nature;
While this list is not exhaustive, the deductibility of other expenses that an SMSF may incur will need to satisfy the general principles stated by the ATO at the beginning of this ruling as follows:
The tax deductibility of expenditure incurred by a superannuation fund is determined under section 8-1 unless a specific deduction provision in the Income Tax Law, such as section 25-5, applies.
Expenditure of a superannuation fund, which is not of a capital, private or domestic nature, is deductible under section 8-1 to the extent that:
- It has the essential character of an outgoing incurred in gaining or producing assessable income; or
- It has the character of an operating or working expense of a business or is an essential part of the cost of the fund’s business operations.
Further clarification of this issue is specifically covered in Taxation Ruling 2672. Basically, costs incurred by a trustee of a superannuation fund in amending the fund’s trust deed are not deductible under subsection 51(1). Rather, they are classed as outgoings of capital or of a capital nature.
Specific examples that the ATO give of amendment costs which are not deductible are costs incurred in:
- Establishing a trust; and
- Executing a new deed for an existing fund; and
- Amending a deed to enlarge or significantly alter the scope of the trust’s activities.
But if the amendments are needed due to changes in Government regulations, and are made to ensure that the fund’s day to day operations continue to satisfy its compliance obligations, then costs incurred by a SMSF trustee in amending a trust deed are deductible.
What else IS deductible?
- Life insurance premiums
- “Any occupation” TPD total and permanent disability premiums
- Partial deduction for “own occupation” TPD total and permanent disability premiums (Click Here for more info on TPD and tax deductibility).
- Investment research subscriptions
What else is NOT deductible?
- Upfront fees incurred in investing money are of a capital nature and are not deductible;
- Investment or administration charges levied by a life assurance company;
- Costs attributable to the earnings of assets backing tax exempt income streams.
Notes about Apportionment – Any expenditure incurred in gaining or producing exempt income only (such as an SMSF income stream/pension) is not deductible. Now what happens when there is both an accumulation and a pension account within the SMSF? Expenditure (e.g. general administrative expenses of managing your SMSF) which is incurred partly in producing assessable income and partly in gaining exempt income must be apportioned. Remembering the general principle, the expenditure is deductible only in proportion to which it is incurred in producing assessable income. Therefore, each of the expenses listed above would need to be apportioned if it is incurred partly in producing assessable income and partly in producing exempt income. This is when an actuary certificate is required by law to determine the proportion of exempt pension income and expense.
GO to the ruling HERE
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