An accounting fee charged to an SMSF entirely in pension phase is unlikely to yield a tax deduction unless the billing practices of the firm are very specific with any resulting benefit being improbable in any case, a sector specialist has said.
“An accounting fee is a general expense and would be deductible under [Tax Ruling 97/7 Income Tax: section 8-1 – meaning of ‘incurred’ – timing of deductions] and under [this section] says you only get a deduction for expenses incurred in earning assessable income. There is no assessable income [in this circumstance] so the tax deduction for the accounting fee is zero,” Accurium head of SMSF education explained to practitioners who participated in a recent technical webinar.
“However it may come down to the accounting practice’s approach as to whether it issues just one bill for accounting fees, which includes the preparation of the return, or if separate invoices are issued because one firm is preparing the tax return and a separate firm is performing the admin service for the fund and preparing the accounts ,” he noted.
“It means if a separate tax agent fee can be identified it can be claimed under a separate section [being Income Tax Assessment Act 1997 (ITAA) section 25.5],” he explained.
According to Ellem even if a tax deduction can be claimed for accounting fees under ITAA section 25.5 it is likely to be pf no practical benefit to the SMSF.
“The issue here is the deduction will create a tax loss. When you carry that forward, and in the following financial year the fund is still fully in pension phase, then the rules say that any carried forward tax loss is reduced by net ECPI (exempt current pension income),” he said.
“It means the carried forward loss would be reduced to zero anyway and the fund won’t get the advantage of that loss,” he concluded.
