Which SMSF expenses are tax deductible?

The expenses you incur in the running of your self-managed super fund (SMSF) are generally tax deductible, but that doesn’t give you carte blanche. All deductions must comply with Australian superannuation and taxation legislation.

Your SMSFs should only pay expenses that are:

• Allowed for under super legislation and the SMSF’s trust deed
• Consistent with implementing the SMSF’s investment strategy.

What are the general principles to follow?

Some SMSF expenses are tax deductible while others are not. To be tax deductible, the expenses must relate to your fund earning taxable (assessable) income.

All super funds (including SMSFs) are taxed on their investment earnings, contributions made by employers on behalf of fund members, and on member contributions where a tax deduction has been claimed for the contribution. These contributions and earnings are taxed at the concessional super rate of 15% in Australia, up to certain contributions limits. Higher income earners pay an additional 15% tax on contributions if their combined income and super contributions are above a certain threshold, currently $250,000.

SMSF expenses are not tax deductible if they are capital expenses, such as the cost of purchasing fund assets.

Does it matter whether SMSF members are in accumulation or retirement phase?

Yes. SMSF expenses are not tax deductible if they relate to non-taxable (non-assessable) income. Non-taxable SMSF income includes earnings from assets supporting members’ super pensions.

If your SMSF has members in both the accumulation and retirement phases, its expenses must be split proportionally between its taxable and non-taxable income. This can be a complex calculation, so SMSFs in this situation need to use the services of an actuary to determine their non-taxable income. Only the expense amount apportioned to taxable income is tax deductible.

No expense-splitting is necessary for costs associated with collecting and processing fund member contributions or on the insurance premiums paid on behalf of members. However, splitting is necessary for most other types of SMSF expenses.

What SMSF expenses are tax deductible?