At this time of year many individual taxpayers are looking around for what they can claim as a tax deduction, often Superannuation comes to mind. However a SMSF is a taxpayer in its own right, so what can be claimed as a tax deduction?
SMSF Trust Deed & Legislation
Before considering the legislation it is important to first look at your superannuation fund trust deed. Although most deeds are drafted in fairly broad terms, it pays to be familiar with what the deed allows you to spend your money on.
When you are considering these costs, ask yourself:
- Will the payment be allowed under my trust deed?
- Will the payment be allowed under the Law governing superannuation?
- Am I able to gain a tax deduction for the payment?
When you are considering the superfund legislation its really important to understand what the general intention of the legislation is. Generally, these legislations are created to protect the members account balances and states you should adhere to the Sole Purpose Test.
Common Deductions for SMSF
Common deductions for SMSF are:
- Accounting and audit fees
- Bank charges
- Depreciation on rental properties
- Filing fees
- Financial planning fees
- Interest paid on installment arrangement
- Life and TPD (Total and Permanent Disability) insurance premiums
- Rental property deductions
- Valuation and storage costs,
- Training courses that complement the investments of the fund
Additional there are two other tax deductions available to SMSFs namely:
- Exempt current pension income deduction – available for funds paying pensions. So understand your pension rules here, this benefit can be significant.
- Anti-detriment deduction – a very valuable deduction for any fund paying a death benefit once again understand the rules and the cashflow issue associated with this.
Taxation Ruling (TR 93/17) contains a detailed list of expenses that are deductible to your SMSF. Many trustees may find this ruling useful.
What about Travel Costs?
Is it possible for your SMSF to pay for travel costs incurred to visit an investment property owned by the fund? Yes, it is possible if the time and the costs associated with the travel are realistic, when compared to the overall size of the fund and the asset mix.
For example 4 week trip to the South of France to view a small investment property in a fund worth $200,000 may seem a bit extreme and hence raise the issue of the Sole Purpose test. Whereas a weekend to Sydney to view the Rental property at Manly may be consider reasonable.
Remember to always ask before you spend and always maintain substantiating records that show that the cost belongs to the superfund. Be prepared to document any personal use associated with the trip and do not pay this out of the superfund bank account.
Remember if the cost seems unusual then be prepared for a few questions from the auditor and the ATO.