SMSF members whose accounts are in the accumulation (tax paying) phase, should remain informed of which expenses of the fund are tax deductible and which are not.
The ATO has guidelines regarding tax deductible expenditure in SMSF funds. It considers something tax deductible if it is an expense incurred while producing or gaming assessable income or is an essential part of the fund’s business operations or business working expenses.
Specifically, the ATO gives a number of explicit examples of the types of expenses that are tax deductible for SMSFs. These include costs for:
- actuarial, accounting and auditing
- complying with regulations and other administrative work in managing the fund
- the calculation and payment of benefits to members (but not the cost of the benefit itself)
- investment advice and costs in providing pre-retirement services to members
- the funds 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 expenses that a SMSF may incur will need to satisfy the general principles as mentioned above to qualify as a tax deductible expense.
Examples of other expenses may include:
- life insurance premiums
- “Any occupation” total and permanent disability premiums as well as partial deduction for “own occupation”
- investment research subscriptions
Expenses that as a rule are not tax deductible include:
- upfront fees in establishing a trust and incurred in investing money
- investment or administration charges levied by a life insurance company
- costs attributable to the earnings of assets backing tax exempt income streams
- executing a new deed for an existing fund or amending a deed to enlarge or significantly alter the scope of the trusts activities
Oculus are SMSF specialists, call us to discuss your personal situation.