General SMSF deductions
In the absence of a specific deduction provision, and subject to exclusions discussed below, a loss or outgoing incurred by a super fund is deductible under section 8-1 of the ITAA 1997 (the general deduction provision) to the extent that:
it is incurred in gaining or producing assessable income
it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.
Expenses that are an ordinary incident of the operations of the SMSF that gain or produce its assessable income fall under this general deduction provision (unless a specific provision could also apply and is more appropriate in the circumstances).This can include expenses such as:
management and administration fees
audit fees
subscriptions and attending seminars
ongoing investment related expenses.
Source: SMSF General Deductions
Supporting documentation
For an SMSF to claim a deduction for general expenses, the following documentation should be available:
Copies of receipts / tax invoices (ideally in the name of the SMSF)
Where the general expense is shared by the members personally as well as by the SMSF, calculation of the portion applicable to the SMSF must be reasonable and details of the calculation provided
Apportionment example
Justine is a trustee of an SMSF and also manages an investment portfolio she holds personally.
To assist with management of both portfolios (SMSF and personal) Justine subscribes to an investment analysis newsletter. The annual cost of this subscription is $600 which Justine pays via her personal credit card.
Based on the size of the respective investment portfolios, for the 2019-20 financial year Justine apportions the $600 cost as follows:
SMSF - 60% x $600 = $360
Personal - 40% x $600 = $240
Upon payment of renewal of the subscription Justine immediately reimburses herself the $360 relating to the SMSFs portion of the expense.
The method of apportioning expenses to an SMSF when they are incurred for a dual purpose must be fair and reasonable based on the specifics of the scenario.
The obligation of demonstrating the deductibility of the expense and how it relates to the SMSF generating assessable income is on the trustee of the fund.
Evidence must also be provided to the independent auditor of the fund. Where an SMSF incurs an expense related to the members personally and it's not immediately reimbursed, it's possible the SMSF could be seen to be providing financial assistance to members (S65) or even be in breach of the sole purpose test (S62)
Where an SMSF is in entirely in pension phase and solely generating exempt current pension income, the value of claiming a tax deduction for general expenses if nil - refer below under exclusions.
An expense paid by a member or trustee on behalf of an SMSF that is not immediately reimbursed can also be considered a contribution to the fund. Examples of this are covered in Tax Ruling 2010/1
Exclusions
Under the general deduction provision, an SMSF cannot deduct a loss or outgoing to the extent that:
it is a loss or outgoing of capital, or of a capital nature
it is a loss or outgoing of a private or domestic nature
it is incurred in relation to gaining or producing income of the fund that is not assessable income such as exempt current pension income
the income tax laws prevent the fund from deducting it.
You cannot claim more than one deduction for the same expenditure. If two or more tax provisions allow you deductions for the same expenditure you can deduct only under the most appropriate provision.