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.
Can the set-up cost of a Corporate Trustee be deducted from an SMSF when the SMSF is established?
Can the set-up cost of a Corporate Trustee be deducted from an SMSF after the SMSF is established?
Can the Bare Trust set-up fees be deducted from the SMSF?
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) do 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 to facilitate the ongoing operations of the SMSF is tax deductible. Unless the amendment Deed results in changing the Fund structure or function or creates a new asset.
The default way we set up an SMSF is with individual Trustees. We charge a set-up fee of $450 for an SMSF with individual Trustees. If the Trustee is then converted to a Corporate Trustee after the SMSF is established, the expense of establishing the Corporate Trustee is not 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 charges a fee of $450 to set up an SMSF with individual Trustees. This contribution is regarded as a non-concessional contribution and will be allocated equally amongst Members. This is regarded as the initial seed money to establish the SMSF, similar to 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.
Treatment of the Bare Trust Set-up Fees
An SMSF cannot claim the cost of the Bare Trust set-up fee as a deduction in the respective financial year. These costs are generally capitalised to the property cost base.
