Reimbursement window is narrow

SMSF reimbursement

SMSF expenses paid by a member will be treated as a contribution unless the member moves quickly to claim a reimbursement.

SMSF members seeking reimbursement for expenses related to their fund should ensure they are paid promptly to avoid the payment being deemed to be a contribution, an SMSF expert has advised.

Accurium head of education Mark Ellem explained the difference between a fund expense paid by a member being considered a legitimate cost item or a contribution by that member was based on the time it took to claim reimbursement for that expense.

“If the member does seek immediate reimbursement from the fund and the fund reimburses the member, then it won’t be a contribution,” Ellem said during a recent live question and answer session.

“Immediate reimbursements should happen really quickly because the ATO would [recognise both] the member and the trustee would be aware of this at the same time because generally the member is also a trustee or director of the corporate trustee,” he noted.

Ellem added documentary evidence is required to show the actual timeframes taken for the reimbursement to take place.

“To prove it was an expense we should see the evidence of the reimbursement [being sought] and the reimbursement happening with the date of the invoice and when the fund actually reimburses the member [key].

“If that happens over 30 June, then the fund is going to record that expense as a sundry creditor,” he said.

“If you are preparing accounts now for 2020-21 and have discovered there was an expense of the fund and the invoice is dated August 2020, and only now picked up that the member has paid for it, then most likely that will have to be recorded as a contribution because you couldn’t show that the member sought immediate reimbursement.”

According to Ellem, SMSF members paying fund expenses is a common issue usually detected when the annual financial statements for the fund are being prepared.

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