Masterclass SMSF – Are SMSF setup costs deductible according to the ATO? What expenses are claimable?

Masterclass SMSF – Are SMSF setup costs deductible according to the ATO? What expenses are claimable?

SMSF – Are SMSF setup costs deductible according to the ATO? What expenses are claimable?

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 lodgment fee, however a late lodgment 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 deductablility of other expenses that a SMSF may incur will need to satisfy the general principles stated by the ATO at the beginning of this ruling as follows

General principles

  1. 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.
  2. 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 Aportionment – 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

See the slides SMSF Roadmap Overview.

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to find the right expert to answer your question – it’s FREE also! No obligation. 0407 361 596, Paul.

Also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.


About SuperBenefitnews

Self-Managed Superannuation Service Providers in Australia. SuperBenefit provides a wholistic SMSF assistance, education and administration service continuum - 1. “assistance” is help of whatsoever nature where our overall SMSF experience and knowledge enables us to provide assistance/help without any legal (or “license”) limitations. 2. “education” involves providing knowledge through teaching, coaching and mentoring about all matters SMSF, including (but not limited to) investment issues such as equities and property, 3. “administration” encompasses all admin aspects of legally required SMSF trustee and member record keeping including (but not limited to) audit and ATO matters. In keeping with our key point that SuperBenefit does not provide Financial Advice, where issues arise from 1, 2, and/or 3 above Indicate a need for a legally authorized provider (such as a Financial Adviser) and the client does not have their own service provider, the client can utilize SuperBenefit’s ‘Connect Assist’ … SuperBenefit, in itself, does not provide Financial Advice, but it does provide the wherewithal for great SMSF service. WE do not provide Financial Advice or any other service that requires a legally authorized provider. However, where such advice or service is required we have our ‘Connect Assist’, a SuperBenefit resource we use to connect clients to a Licensed Advisor or other legally authorised service provider. Call us 0407 361 596, no obligation FREE Connection call to see how we can help you!
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