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Expenses

Understanding Eligibility of Expenses in SMSF

Eligible expenses in an SMSF are those that can be claimed as deductions within the fund, thus reducing the taxable income and ultimately the tax liability of the fund.

Operating Expenses:

  • Investment-related expenses: SMSFs can claim deductions for expenses directly related to managing and maintaining the fund’s investments. These expenses may include brokerage fees, investment management fees, and financial advice fees
  • Administrative expenses: Costs associated with the administration of the SMSF, such as audit fees, accounting fees, and legal fees, are generally considered eligible expenses
  • Insurance premiums: Premiums paid for insurance policies that provide benefits to fund members (e.g., life insurance or income protection) can be claimed as eligible expenses
  • Tax-related expenses: Costs associated with the preparation and lodgment of the SMSF’s annual tax return are deductible. This includes tax agent fees and other expenses related to fulfilling the fund’s taxation obligations

When it comes to claiming expenses in an SMSF, there are several important considerations to keep in mind:

  1. Sole Purpose Test: The expenses claimed must be directly related to the sole purpose of the SMSF, which is to provide retirement benefits to its members. Any expenses that benefit the members personally or do not align with the fund’s primary purpose may not be eligible
  2. Documentation/invoice: Proper documentation and record-keeping are vital. Trustees should maintain detailed records of all expenses incurred and ensure they are appropriately allocated to the SMSF
  3. Compliance: SMSF trustees must adhere to the rules and regulations set by the ATO. These rules can change over time, so it’s essential to stay informed and seek professional advice to ensure compliance
  4. Seek Professional Guidance: Given the complexity of SMSF rules and tax laws, it’s advisable to seek advice from qualified professionals, such as accountants or financial advisors, to ensure compliance and optimize tax benefits

Non Eligible or non-deductible Expenses

It is critical to knows that certain expenses cannot be claimed as deductions in SMSF. Also, certain expenses should not be paid from the SMSF.

  1. Personal Expenses: Any expenses that primarily benefit the members of the SMSF personally, rather than serving the sole purpose of providing retirement benefits, are generally not claimable. For example, expenses related to personal travel, living expenses, or day-to-day personal needs cannot be claimed
  2. Pre-Existing Assets: Expenses related to assets that were acquired before the establishment of the SMSF cannot be claimed. SMSFs are typically only allowed to claim expenses related to assets owned by the fund
  3. In-House Assets: The acquisition of in-house assets from related parties, such as loans to fund members or investments in related entities, may have restrictions and cannot be claimed in their entirety. There are strict regulations surrounding these types of transactions. A personal computer purchased for SMSF purpose also not allowed, as it is resides within the residential property
  4. Expenses Incurred Before the SMSF Is Established: Any expenses incurred before the establishment of the SMSF, including setup costs, are not claimable. SMSFs can only claim expenses incurred once the fund is operational
  5. Non-Compliant Expenses: Expenses that do not meet the ATO’s compliance standards and regulations, such as those not properly documented or expenses that breach SMSF investment restrictions, are not claimable.
  6. Excessive Expenses: Expenses that are deemed excessive or unreasonable by the ATO can be disallowed. Trustees should ensure that expenses claimed are within reasonable and customary ranges
  7. Penalties and Fines: Expenses related to penalties and fines, including those incurred for non-compliance with SMSF rules and regulations, cannot be claimed
  8. Non-Arm’s Length Transactions: Expenses related to non-arm’s length transactions, where the SMSF engages in transactions with related parties on non-commercial terms, may not be claimable. These transactions are subject to special rules and scrutiny
  9. Capital Expenses Not Depreciable: Some capital expenses related to acquiring assets, like real estate, cannot be claimed immediately but may need to be depreciated over time. Capital expenses forms part of cost base of the asset

SMSF SOLUTIONS AUS PTY LTD & THE BROOK HILLS TAX ACCOUNTANT PTY LTD AS PARTNERS FOR ARCH PARTNERS ABN 67 487 335 799; TAX AGENT REGISTRATION 26214880

General Advice Warning:

No Advice Express or Implied: The information presented on this website is of a general nature and has not been crafted to accommodate the specific objectives, financial situation, or individual needs of any particular investor. SMSF Solutions refrains from providing financial product advice or endorsing any financial products, either explicitly or implicitly. It is explicitly stated that SMSF Solutions neither recommends nor represents any financial product or service available through its platform, including those established for your SMSF upon becoming a client. 

Seek Professional Advice from a Financial Adviser: SMSF Solutions operates on a no-advice model and does not dispense financial, legal, or tax advice to clients. It is strongly advised that clients seek appropriate professional advice based on their personal circumstances. A licensed financial adviser can assess an individual’s situation and provide recommendations suitable to their financial needs. All information on the SMSF Solutions website is factual and general in nature, and therefore, reliance on it should be avoided. Trustees bear legal responsibility for all decisions made, even if advice is sought from a financial planner. While financial professionals can offer guidance and assistance, ultimate responsibility for the fund lies with the trustees.

ARCH PARTNERS and its employees wish to acknowledge the Traditional Custodians of Country throughout Australia where we operate our business. We recognise their connection to the land, water and culture and wish to pay our respects to their Elders past, present and emerging.