In an SMSF, two different accounting and tax treatments can be used: the accrual method or the cash method. To avoid discrepancies between the accounting and tax treatments, we are currently undertaking the cash method for the accounting and tax process. The Tax Office has issued a taxation ruling (TR 93/17) clarifying the income tax deductions available to an SMSF. We list three typical questions below regarding deductible expenses.
No, the set-up cost of a Corporate Trustee is a non-deductible expense as the Fund is not carrying on a “business” in the usual sense, even though it is “producing” assessable income predominantly from its investments and taxable contributions.
Yes, the set-up cost of a Corporate Trustee will be regarded as a normal operating cost, thus it can be deducted in the tax return of an SMSF.
Yes, the cost to set up a Bare Trust is regarded as capital expenditure expenses and can be deducted over 5 years. For more info on the capital expenditure expenses, please refer to the Income Tax Assessment Act 1997 (Section 40-880).
Tax Deduction of Set-up Fees
As the Tax Office states, the capital expenses of setting up an SMSF (e.g. establishing a corporate trustee) does not qualify as a tax deduction as the SMSF is not carrying on a “business” in the usual sense, even though it is “producing” assessable income predominantly from its investments and taxable contributions. The ATO’s view about the deductibility of costs of amending an SMSF Trust Deed applies the same principles to the establishment costs of an SMSF given they are of the same purpose and nature.
The default way we set up an SMSF is with individual Trustees. We charge a set-up fee of $150 for an SMSF with individual Trustees. If the Trustee is then converted to a Corporate Trustee after the SMSF is established, the expense for establishing the Corporate Trustee is then deductible. For more info on the pros and cons of the Corporate Trustee, please refer to the link here.
Treatment of the Set-up Fees
Superannuation Warehouse charge a fee of $150 to set up an SMSF with individual Trustees. This contribution is regarded a non-concessional contribution and will be allocated equally amongst Members. This is regarded the initial seed money to establish the SMSF, similar to an initial funding to establish a family trust. remember an SMSF is a type of Trust, hence the need for this initial contribution.
To initiate the set-up of an SMSF, follow our online process by clicking here.