Superannuation, Tax

Deed change deductions not equal

SMSF deed deductions

Tax deductions for a change to an SMSF trust deed are based on the impact on the operation of the fund and so not applied across the board.

SMSF members looking to amend a trust deed will need to consider the nature of any change before claiming tax deductions as some alterations will not be deductible, according to an SMSF expert.

Smarter SMSF chief executive Aaron Dunn said the context of a change or amendment to an SMSF trust deed was the main factor in determining if the trustees were able to claim any deductions for costs related to making that change.

“Where we have a trust deed amendment and the cost is incurred in the establishment of the SMSF, such as executing a new deed for an existing fund or amending a deed to either enlarge or significantly alter the scope of the trust’s activities, these are generally not deductible as they are capital in nature,” Dunn said in a recent online presentation.

“Trust deed amendments that are required to facilitate the ongoing operations of a super fund are generally deductible under the general deduction provisions.”

He said the latter type of change may be to meet legislative changes to SMSF operation that will apply from 1 July, particularly where the trust deed was prescriptive in its operation.

“If a fund amends a deed to keep up with changes to the super law, the expense in doing this will be deductible under those general deduction provisions, unless the amendment results in an enduring change to the fund structure, or its functions, or creates a new asset as a result of that amendment,” he said.

He said an enduring change would be a shift from an individual to a corporate trustee and the legal cost to amend the deed and the Australian Securities and Investments Commission fees to register the corporate trustee would not be deductible expenses.

In contrast, expenses related to a trust deed update, such as a change of address or a revision of deed provisions, would be deductible.

“The difference here is as the changes to the trust deed are an ordinary incident of the day-to-day running of the fund, and therefore not seen to be capital in nature, we are entitled to a tax deduction for that legal fee that has been charged in respect to the fund,” Dunn said.

He also pointed out that while a change to an SMSF trust deed to allow it to undertake a borrowing to acquire a residential property using a limited recourse borrowing arrangement would seem like it was deductible, that was not the case.

“The reason they are not deductible is because of the addition of new borrowing powers which now create an enduring change to the functionality of the SMSF, and in that context that specific amendment would not be deductible for the fund,” he said.

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