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SMSF: Capital vs revenue expenses

Self-managed super funds (SMSFs) have access to a range of tax deductions for expenses incurred. Whether the expenses are capital in nature or are considered as revenue will affect eligibility for claiming such deductions.

The Tax Office considers an expense that is incurred in establishing or making enduring changes to a super fund’s structure or function as capital and not deductible under the general deduction provision. For example, the costs of establishing an SMSF are capital in nature. An expense incurred in acquiring capital assets is also usually capital in nature.

Trust deed amendment costs incurred in establishing a trust, executing a new deed for an existing fund and amending a deed to enlarge or significantly alter the scope of the trust’s activities are generally not deductible as they are capital in nature.

If trust deed amendments are required to facilitate the ongoing operations of the super fund, they are generally deductible. For example, if a fund amends a trust deed to keep it up to date with changes in super legislation this would be deductible.

Furthermore, expenses incurred in making changes to the internal organisation or day to day running of the fund are not considered to be capital in nature provided such changes do not result in an advantage of a lasting character. If a super fund is carrying on a business, it may be entitled to deduct certain capital expenses under the specific deduction provision, section 40-880 of the ITAA 1997.

Funds that incur expenditure in gaining or producing exempt income or incur expenditure of a capital, private or domestic nature cannot access a deduction under Section 8-1 of the ITAA 1997.

Contact our office if you have any questions about the deductibility of your SMSF’s expenses.

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News

Do you know where your super is?

February 21, 2019

If you’re not close to retiring, you may not be thinking about your super or where it is. Even if you are a way off from retiring, you should be keeping track of where your super has gone. $17.5 billion of super was lost in 2017-18, $420 million down from the previous year. If you are not paying attention to your super contributions, accounts and insurances, you may have lost super. You may also have unintentionally lost track of super if you have ever changed your name, address, job or lived overseas.

It is not uncommon for people to have multiple super accounts they have acquired over the years of working at different companies. Having multiple unused accounts can result in high fees that drain your untouched super or you could lose track of it completely. It is in your best interest to consolidate all super into one account that suits your retirement goals. When closing unused accounts, you should be mindful of any termination fees, insurance policies, investment options, and ongoing service fees.

If you have lost track of your super it may be held by either your super fund as a lost account or as an ATO-held account. The easiest way to consolidate super is through the myGov website, linking the ATO to records of your super funds