Expenses in an SMSF

An SMSF must pay certain expenses if it is to continue running for the purpose of providing retirement benefit for its Members. Normal operating expenses will be tax deductible in the SMSF. Remember, however, that Trustees cannot be remunerated for their services to the Fund.

An expense that has a ‘private element’ cannot be claimed as tax deductible. For example, if a computer bought for SMSF use is also used privately, the expense cannot be claimed. This is because the SMSF is not a ‘business’.

It is also important to remember that, for Members in pension mode, any expenses paid towards earning this ‘exempt income’ are not deductible. The apportionment formula is defined in the ATO ruling below. When at least one member of an SMSF has an account in the accumulation (taxpaying) phase, SMSF trustees must be aware which of the fund’s expenses are tax deductible, and which are not.

The General Principle

An expense incurred by the SMSF, which is not of a capital, private or domestic nature, will be tax deductible to the extent that it has the essential character of an outgoing, incurred in gaining or producing assessable income.

Taxation Ruling on Specific SMSF Expenditure

The ATO’s taxation ruling TR 93/17 sets out the following list of SMSF expenses that are tax deductible:

  • 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 SMSF’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;

Other SMSF expenses can include:

  • life insurance premiums;
  • total and permanent disability insurance premiums;
  • partial deduction for total and permanent disability premiums;
  • investment research subscriptions; and
  • costs for amending a trust deed are deductible 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.

What is not deductible?

  • upfront fees incurred in investing money are of a capital nature and are not deductible;
  • costs attributable to the earnings of assets backing tax exempt income streams (see below for the note on apportionment).

Apportionment

Expenses incurred in gaining or producing exempt income only (pension income) are not deductible. If the SMSF contains an accumulation account and a pension account, expenses incurred partly in producing assessable income and partly in gaining exempt income must be apportioned.

  • Ujjwal

    Can i Claim brokerage expenses as non delectable??

    • superannuationwarehouse

      Ujjwal, your question is not clear, but I take it you want to know if broker fees are tax deductable.

      Brokerage can be handled in one of two ways and this can be nominated in the accounting policies of the SMSF:
      1. Captitalise against the cost base of the shares; or
      2. Expense it in the SMSF.

      In order to expense the brokerage or other expenses depend on the nature of the expense and whether the SMSF was in accumulation phase only, pension phase only or partly in accumulation and pension phase.

      If the costs relate to the initial establishment of accounts, the expenses would be
      more likely to be capital in nature and therefore not deductible against the Fund’s assessable income. While expenses considered to be capital may not be deductible against the assessable income of the Fund, they may be added to the cost base of
      investments for capital gains tax purposes.

      If the SMSF is fully in accumulation phase, any expenses that are considered to be
      deductible will be allowed against the Fund’s assessable income. SMSF deductible expenses are usually accountancy and tax preparation fees, audit fees, bank fees, investment research subscriptions, legal advice fees, the administrative costs of managing investments and the Fund’s annual lodgement fee but not any late lodgement penalties.

  • MartyOA

    Hi Can a SMSF invest in a business by way of paying an advertising levy and as a result receive an income. The SMSF has no control over where the advertising money is spent. This control is handed exclusively to an arms length 3rd party business advisory group.

    And if this is possible is the payment a tax deduction against the income received by the fund.
    And is the GST component claimable?

  • superannuationwarehouse

    MartyOA,

    When an SMSF invest in an asset, it must get legal title over the asset. The normal way for investment is to purchase shares and to receive a share certificate in the name of the SMSF. For guidance on what type of companies you can invest in and related party rules, see here:
    http://www.smsfwarehouse.com.au/smsf-investments/business-in-a-smsf/

    The investment is of a capital nature and not an expense. So this is carried in the Balance Sheet (assets) of the Fund.

    Trust this answers your question.

  • Chris

    If the trustee of an smsf entered into a transaction of incurring $2000 of electricity expenses for the fund would this contravene SISA 1993? The account is 4 months overdue.

    • Hein Preller

      Chris,

      The Tax Office always looks at the purpose of the expenses. All
      the expenses the SMSF have must be for the sole purposes of the SMSF. It should
      not have any personal use involvement. For more info on the sole purposes test,
      please see:
      http://www.smsfwarehouse.com.au/smsf-investments/sole-purpose-test/

      On your comments for the electricity account being over due – this does not affect the legitimacy of the expense, on the proviso the expense is for the SMSF. So most likely the SMSF must be the owner of a property, and most likely a commercial property for the electricity expense to be so high.

      • Chris

        Thanks for your help! I have tried to locate the private ruling from the ato that deals with such expenses. I have been directed towards private binding ruling 17651. However, I can not seem to find this in the ato registry. Do you know the one I am looking for?
        Chris

  • Roger

    Hello. Would books on trading and investment strategies for the investment types allowed by a fund investment strategy (e.g. futures, options or forex) be treated as SMSF expense? The purpose would be to increase fund income and it would be the sole purpose, as I do not trade these personally or professionally.

  • superannuationwarehouse

    Roger,

    On the face of it, this seems like a legitimate expense as its for the sole purpose of the SMSF. Remember to have the invoice made out to the Fund if possible.

  • Doris

    can a set up fee for a company trustee be paid by SMSF when changing from individual trustee to company trustee?

    • superannuationwarehouse

      Doris, setting up a Corporate Trustee is an expense for operating the Fund. The SMSF can and should pay for this expense.
      Most people set up their Funds with individual Trustees. This can be converted to a Corporate Trustee of the need arise, e.g. when purchasing a property with bank loans.
      Trust this helps

  • Wazza

    Can you claim the GST on establishment fees (trust deeds) upon setting up the SMSF ?

    • superannuationwarehouse

      We usually don’t register SMSF’s for GST. The admin hassle to claim back
      the minimal amount of GST is generally speaking just not worth it.
      However,
      if you prefer to have the SMSF registered for GST we set it up so you
      as the Trustee receive the BAS form in the mail from the Tax Office. You
      can then claim GST.
      When an SMSF purchase a commercial property,
      then its sensible to register for GST as the Fund can claim back a big
      chunk of GST.
      As a tax agent we will register the SMSF on your
      hahalf for GST if you choose to have it registered. We do not charge a
      fee to do this.
      Trust this answer your question.

  • Mark

    Can an SMSF pay legal fees incurred to win a claim on superannuation owned TPD insurance? If so, the second part to this question is what if the TPD cover was owned by a personal super fund owned by the same member but not the SMSF, as the personal fund cannot facilitate any such payment to solicitors?

    • superannuationwarehouse

      Mark,

      An SMSF can pay the legal fees on the assets and policies it owns. Best is to have invoices made out to the SMSF to substantiate the expense.

      The second part of the question is not clear. I assume you mean there is a retail fund. In this case, the Trustee of the retail Fund will act on your behalf. The retail fund can pay any legal costs if needed.

      Trust this answer your question.

    • superannuationwarehouse

      Just answered

      Regards Hein Preller Director – Superannuation Warehouse 03 86106999 (Office) 04 11241215 (Mobile) smsfwarehouse.com.au

  • Adriano D’Ovidio

    Hi
    Have a SMSF and live in Perth WA ,have purchased a property in Victoria 3 years ago and have an agent taking care of it. Since then haven’t gone back to check on that property, only received pictures via email.Would like to inspect/check that property myself in person.
    Can I claim the moneys for the flight and accommodations going to Victoria or Can I pay it out of the superfund money.

    • superannuationwarehouse

      Adriano,

      In the last budget it was announced that from 1 July 2017 all travel deductions relating to inspecting, maintaining, or collecting rent for a residential rental property will be disallowed.

      So to claim a travel expense, do it before the year end. Make sure the travel is for the sole purpose of the SMSF and the SMSF can then pay for this expense. Some guidance around travel expenses for rental properties can be found here:

      https://www.ato.gov.au/general/property/in-detail/rental-properties/rental-properties—claiming-travel-expenses-deductions/

      My understanding is these restrictions are for residential properties only. If the SMSF holds a commercial property, this new restriction will not apply.

      Get in quick!

  • Adriano D’Ovidio

    Hi Hein
    Thanks for the input about that but just one more questions in regards going to Melbourne to insect the Property and meet up with the Agent.
    Can other director of the fund that’s two people go and can we claim accommodations say for 2 night

    • superannuationwarehouse

      Adriano,
      You can proceed on the basis the expense is incurred for the sole purpose of the SMSF. You can’t combine this expense with a family holiday or personal affairs.
      Its generally good practice to keep a diary noting the nature of the visit. So write for example, inspecting the property on day 1, see the property manager on day 2 and see the lawyer on day 3. This will make it easier to substantiate the claim when the fund gets audited.
      Lastly, do this before 30 June 2017 if its a residential property as the rules will disallow these expenses after this date.
      Hein

  • Gavin McGrath

    1. if I undertake a share trading course ($15k) could I pay for this
    from my proposed SMSF (balance $400k). The course would be directly
    related to the SMSF (& the invoice would be made out to the SMSF) & would not be used for
    trading any funds in my individual name (does this fit the sole purpose test). There seems to be differing
    views on this as to whether I would be receiving a personal benefit. Do
    you think this would be acceptable under the SMSF audit?
    2. Can a SMSF pay for a investment subscription service (in the name of the SMSF)
    3. What are the rules/guidelines around the number of share trades allowed. I’m not referring to day trading but assume you were trading in the Australian market & US markets and were doing between 100 & 200 trades a year. Does the ATO provide guidance on this?

    • Hein Preller

      Gavin,

      The overriding principle is if an expense is incurred for the sole purpose of the SMSF and your retirement benefit, the expense is a valid expense in the SMSF and can be claimed as a tax deduction. More guidance on the sole purpose test here:
      https://www.smsfwarehouse.com.au/smsf-investments/sole-purpose-test/

      More specifically, on your questions, I can answer as follows:
      1. A share trading course is a valid expense as far as I can see, best to pay it from the SMSF bank account if possible.
      2. Yes, an SMSF can pay for subscription fees on the basis its for the sole purpose of the SMSF.
      3. There’s no count or ATO guideline on the number of trades you can do in an SMSF. Make sure the type of investment in covered in the SMSF investment strategy. You can download and edit an investment strategy from our website.

      To visualise, an SMSF can do exactly the same type of transactions and incur similar expenses to a big retail or industry fund. The only real difference is Trustees in an SMSF don’t get paid.

      Keep well,

      • Gavin McGrath

        Hi Hein

        thanks for your reply. In relation to the share trading course I have had previous advice which I suppose was taking a conservative view that I would need to convince the auditor of my superannuation fund that this expense is valid under the sole purpose test. If an auditor decided otherwise they can contravene the super fund. So am I best served to get an audit opinion on the matter before undertaking any course to provide further assurance?

  • Murtaza

    Hi Hein,
    does the smsf trust deed created while setting up have the provision for:
    1. super contribution splitting with a spouse?
    2. FHB Super Saver Scheme?

    Thanks

    • Hein Preller

      Murtaza,

      Both these items you note are standard clauses within an SMSF Fund.

      The Deed we issue note and describe contribution splitting under clause 19, so this is taken care of.

      The FHB Super Saver Scheme is not specifically noted in the standard Deed we issue. However, the first clause note the ATO issue new regulations a guidelines on a regular basis. We then note the SMSF is subject to the guidelines issued by the ATO. There is no prohibition in the Deed to follow any guidelines from the ATO.

      More on the first home saving scheme here:
      https://www.smsfwarehouse.com.au/first-home-super-saver-scheme/

      We surely have the capability to account for the savings scheme noted above.

      Keep well,

  • Andrew Howie

    Hi
    Whilst I appreciate travel costs associated with a residential investment property are no longer a deductible expense for tax purposes, can a SMSF still pay for travel expenses incurred by the trustee(s) as a non-deductible expense as long as the expenses satisfy the sole purpose test.
    Thanks

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Andrew,

      Your understanding of travel expenses associated with residential property is correct.

      On the basis it is an expenses incurred for the sole purpose of your SMSF, it is a valid expense. Its only the tax treatment that makes it not a tax deduction any longer.

      Remember deductions relating to commercial property are still valid as a tax expense.

      Keep well,

  • shahsilenteyes

    Hi I have below 50k superannuartion , i want to invest overseas to buy land. Is it possible

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      It is possible to invest in property overseas but whether it’s sensible or in your best interest is an issue you have to consider.

      Although it is legal to proceed, factors you can consider are as follows:
      1. Make sure the SMSF has a cash buffer to cover unexpected costs
      2. If your balance is relatively low, consider how far off retirement you are; if there’s still many years left to retirement, it might be more sensible to start an SMSF with a low balance as you have many years of super savings ahead of you
      3. Consider if you will purchase the property with or without loans; using loans add to the cost as you need to set up a bare trust.

      We have a good page with guidance on overseas property, see here:
      https://www.smsfwarehouse.com.au/smsf-investments/property/overseas-property/

      Trust this gives you some guidance in the decision making process.

  • Darren Smyth

    Hello Hein,
    In Late 2017 / Early 2018, I was released by my previous SMSF auditor ?, I joined in April 2015. ( Individual / 1 Member & 2 Trustees ).
    Can I change across to Super Warehouse and how do I change from Individual to Corporate

  • shahsilenteyes

    hi, my wife is overseas and waiting for her visa and i am australian citizen. Can we open individual trustee account. And if i am planning to buy land oversaes is it possible to buy as bare agreement because india do not allow foregin investment. is it any criteria how much i can spend in overseas investment . Plz feed back me and i have send you email too if you can contact me then we can start settuping smsf with you . Please feed back thanks

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Shahsilenteyes,

      If you use 2 Trustees, both Trustees need to have Tax File Numbers for us to add them onto the ATO system and registering an SMSF.

      You can consider using another person or use a Corporate Trustee.

      When buying property overseas, make sure the SMSF has the relevant ownership rights over the asset. More guidance here:

      https://www.smsfwarehouse.com.au/smsf-investments/property/overseas-property/

      Keep well,

  • Darren Smyth

    Hello Hein,
    You replied to my issue.
    ABN / TFN has been sent.
    When will I know your company has my papers & Individual is now Corporate.
    Hear soon

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Darren,

      Please remember to send us the name of your SMSF and the Tax File Number to start the take-on process.

      If its easier to discuss, we are happy to do so. Our phone numbers is listed on the page note below, with a land line and an office mobile number:

      https://www.smsfwarehouse.com.au/about-us/melbourne-office/

      We did receive a general email from you which we responded to.

      Thanks

  • Shane M

    Question – as you explained the smsf will pay for the journey to inspect the property/properties in the USA, does the fund pay for it with it’s funds or do I pay and get reimbursed? It is okay to inspect before purchase and during ownership? I guess I want to know does it pay for everything from the flight to car hire to accommodation to food to the insurance? The journey will be for this purpose only so I just need to know what is what.

    I guess if the other trustee wants to come I guess that is covered under the same policy?

    Above all I just to be sure I am not breaching the rules, I don’t want a fine.

    Also I guess the fund can’t hold a credit card? But can it hold a visa debit as such?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Shane,

      If the expenses are incurred for the sole purpose of the SMSF, then it would be a valid expense within the Fund. There is a level of discretion with Trustees. I think purchasing food while overseas is a step too far, as food and clothing would be regarded personal expenses you would have incurred anyway.

      An SMSF can’t have a credit card. So either the SMSF pays directly for expenses or you pay on behalf of the SMSF and get reimbursed from the Fund.

      Lastly, make sure the overseas trip is for the sole purpose of the property purchase. If you combine it with personal travel, e.g. stopping in Las Vegas for a few days, the whole trip is not deductible.

      Trust this gives you the guidance needed.

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