Understanding Set-up Costs Tax Deductibility for SMSFs


Q: Can the set-up cost of a Corporate Trustee be deducted in an SMSF?

A: No, we capitalise this cost.

Q: Can it be amortised over 5 years?

A: 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.

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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.

Q: Can we deduct the bare trust set-up fees in the SMSF?

A: Yes, over either lower of 5 years or the term of the loan. This would be classified as a borrowing expense, similar to loan application fees, legal fees etc.

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