Understanding Set-up Costs Tax Deductibility for SMSFs
Frequently Asked Questions
Can the SMSF pay for the set-up fees?
Yes, you may seek reimbursement of the set-up fees from the SMSF. However, you will need to personally pay for the set-up fees first, since the Fund has not yet been establishment. Once the SMSF is operating, you may reimburse the set-up fees as soon as practicable, as stated by the ATO here. Moreover, if the set-up costs were paid personally and the Trustees do not seek reimbursement, the amount will be treate as a contribution. This is explained in a recent magazine article here.
Can the set-up cost of a Corporate Trustee be deducted in an SMSF
No, we capitalise this cost.
Can it be amortised over 5 years
The 5-year deduction is only available if “running a business”. Best practice for SMSF’s is to include as expense in accounts then adjust (add back) in tax return as a tax deduction is not available to the Fund.
The capital expenses of setting up a Superannuation Fund (e.g. establishing a Corporate Trustee) does not qualify for the ITAA 1997 s40-880 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 (ATO interpretative Decisions ID 2003/524, ID 2003/525: precedential views in respect of expenditure incurred before 1 July 2005).
The ATO’s view about establishing a Superannuation Fund is also found in Taxation Ruling IT 2672. Whilst IT 2672 is specifically about the deductibility of costs of amending a Superannuation Fund Trust Deed, its principles will apply equally to the establishment costs of an SMSF given they are of the same purpose and nature.
Is the amortisation on the formation/establishment costs tax deductible
The answer is NO.
The default way we set up an SMSF is with Individual Trustees. We charge a fixed Setup Fee of $450 for Individual Trustees.
Can we deduct the Bare Trust set-up fees in the SMSF
No, the Bare Trust set-up fee cannot be claimed as a deduction in the relevant financial year, these costs are generally capitalised to the property cost base.