Common expenses incurred when operating an SMSF
When operating an SMSF, it is normal to incur expenses for the fund to continue to exist. Not all the expenses in the process of carrying out operations can be attributed to SMSF. An SMSF can only pay the expenses that SMSF incurs on its name in the course of running the fund. Meaning, the expenses that have a personal use element are not allowable. Even if you incurred a certain kind of expense that has a personal element in running your SMSF, the expense will not be recognized by the fund.
For instance, members can decide to purchase a PC for their SMSF. In case they decide to use it for their private purposes, your SMSF will not pay it since it already has a personal use element.
Likewise, you cannot apportion expenses meant for SMSF use the way you pro-rata Individual Tax Return. So, if you decide to use the PC 70% for the purposes of SMSF and 20% for your own use, you cannot claim that part of the expense is for the SMSF since there is a segment of personal use.
Specific expenses an SMSF can pay
The following are the expenses that an SMSF can comfortably pay:
If property expenses are in the name of your SMSF, the fund can pay for the expense, and it will be tax deductible to the fund. However, at the end of the financial year, a copy of the receipt will have to be produced as evidence during the annual compliance process.
Company Trustee Setup
As long as the company, as a corporate trustee, was formed solely for establishing the SMSF, it might be considered. Although it will not be tax deductible, the expense will be recognized when preparing the assessable income as it will be incurred during the process of establishing the SMSF.
When your SMSF pays for fees incurred in accounting activity, the expenses will be recognized as tax-deductible to your SMSF. Your fund will automatically recognize this expense in the SMSF’s name.
Expenses for any subscriptions made are payable and tax-deductible by the SMSF. However, the expense should be in the name of that particular SMSF. A copy of the expense’s receipt needs to be available when preparing year-end financial statements.
Your SMSF can pay for supervisor levy, and it will be tax deductible to the fund. ATO will automatically issue this expense in SMSF’s name.
Total & Permanent Disability Insurance
Such kind of expense can be paid by an SMSF and be tax deductible. Even if it is in the SMSF’s name, the specific member should be named after the insured individual; otherwise, the expense is not claimable from the SMSF. Your SMSF is not prompted to pay the expense if the current policy is in your personal name. A copy of the receipt also needs to be presented at the end of the year.
Your SMSF can cater for this expense, and it will be tax deductible. This policy should also have the name of the insured member; otherwise it will not be payable from your SMSF.
At the end of the financial year, you need to present a copy of the receipt which is evidence that the expense is in the SMSF’s name.
Insurance for Assets
Certain kinds of SMSF assets need to be insured. For instance, assets such as property or physical gold bought in the SMSF should be insured when they acquired. Your SMSF will cater for this expense if it is in its name and it will be tax deductible. A copy of the receipt is kept as a piece of evidence to be used in the preparation of the end year financial statements.
Income Protection Insurance
An SMSF can pay this insurance expense, and it will be tax deductible to the fund. However, even if the policy is in the SMSF’s name, it should also bear the name of the insured member; otherwise, the expense cannot be claimable from the SMSF. When there is a policy under your personal name, the SMSF will not pay the expense. Make sure to keep the copy of the receipt to be used for the preparation of various kinds of statements.
The expense is allowable from your SMSF, and it is also tax deductible. The name of the SMSF must appear on the receipt of the expense so that the receipt can be used in preparing financial statements.
Storage for Assets
This expense is also allowable as an expense that is tax deductible from your SMSF. A copy of the receipt that bears the name of the SMSF will be required during the annual compliance procedure.
Share Trading Courses
Your SMSF can pay this kind of expense and treat it as a tax-deductible cost. Even if the receipt is under the name of the SMSF, the expense needs to be reasonable. For instance, in a scenario where $15,000 is spent on a Share Trading Course out of a Super Benefit of $30,000, the amount will not be reasonable as it will represent 50% of the Super Benefit. Don’t forget to present a copy of the expense receipt during the process of preparing year-end financial statements.
Share Trading Software
Such kind of expense is a payable and tax deductible from the SMSF. The amount of the expense must be reasonable, and the receipt should be in the SMSF’s name. In case you spend a Share Trading Software of $15,000 from Super Benefit of $30,000, it will not be a reasonable amount as it 50% of the super benefit. A copy of the receipt will evidence the expense during the preparation of year-end financial statements.
Expenses that an SMSF can fail to pay
Your SMSF cannot pay this kind of expense. The reason for this scenario is that there are high chances that the equipment might be used for private purposes and therefore have a private use element.
Even if the expenses are partly used for SMSF purposes, you cannot allocate on a pro-rata basis like the way you do for your individual tax return. This is a scenario where you use 70% towards SMSF and 30% towards personal use.
2. Trauma Insurance
Generally, professionals recommend not to use SMSF for Trauma Insurance. Such kind of insurance caters for things such as stroke, heart attack, etc., which are usually paid out in lump sum amounts.
No super law provisions allow a member to access the insurance until certain conditions that guarantee payment release like retirement are met. If a traumatic event occurs, the insurance pay out will remain trapped in your SMSF making it hard for a member to perform various required duties. To increase the chances of accessing Trauma Insurance, the transaction should be taken under the personal name of the member.
Travel expenses are necessary for managing an SMSF. However, these expenses cannot be paid by your SMSF. The reason for this is that members might also have used travel for private purposes making it unable for the SMSF to pay this expense.
The above article is information only and mot advice.