Advisers and their SMSF clients must pay close attention to how accounting fees are treated with regard to their tax deductibility status when a fund is claiming exempt current pension income (ECPI), a sector specialist has cautioned.
Accurium head of education Mark Ellem noted there are some SMSF expenses that receive automatic tax-deductible status in their entirety under section 25.25 of the Income Tax Assessment Act 1997 (ITAA), such as a tax agent fee, an actuarial fee for ECPI and a tax advice fee.
Conversely, there are expenses, classified as general expense items, where only a portion of the amount charged to the SMSF can be deducted from the fund’s tax return, under section 8.1 of the ITAA, including accounting and administration fees, audit fees, and investment costs and management fees, Ellem said.
Given these rules, the situation of which advisers and trustees need to be mindful is when an accounting firm charges a single amount for multiple services provided, he said.
“We’re separating the process of preparing the annual financial statements, and the fee for that, and the preparation of the SMSF annual return,” Ellem noted during the most recent Accurium technical webinar.
“I understand a lot of [accounting] firms from a practical viewpoint will just charge one fee. There’s nothing wrong with that.
“It just means that if you’ve got a fund that was billed for the preparation of accounts, the annual financial statements and the SMSF annual return [in the amount of] $1500 and the fund claims ECPI in the year that the fee is incurred, that expense is going to [have] to be apportioned because it will be claimed under [section] 8.1 [as] you haven’t significantly identified the tax-related fee.
“Now if [the bill was itemised and] you’ve got [separated items like] preparation of accounts $1200 [and] preparation of the SMSF annual return $300, then you’re going to be able to claim $300 in full and only apportion the $1200.”
He reminded advisers and trustees are required to adopt a fair and reasonable approach to the treatment of tax-deductible expenses at all times.
