SMSF members can claim back establishment costs for a new fund, but must make it one of the first courses of action after the fund has received an initial contribution, an industry specialist has noted.
ACIS SMSF services director Peter Johnson said the ATO had confirmed establishment costs could become a cost of a fund even though its members may have incurred those charges out of their own pocket.
Speaking during an online briefing today, Johnson noted the regulator addressed this issue in an online update in February.
“If you set up a fund, what you have got immediately is a debit for establishment costs, a credit from a member contribution or a credit for a liability to a member depending on how you’re going to treat that cost,” he explained.
“In the set-up process you are asked if the fund has an asset, and it does, it has the establishment costs.
“What you are allowed to do, and the ATO have confirmed this, is immediately seek reimbursement of the establishment costs and when you roll money into the fund, and it can then give those costs back to the member.
“[In terms of book-keeping], when you set the fund up you will have a debit for establishment costs and credit to a trade creditor, which is the members paying those costs.
“Cash comes in and we are going to pay the trade creditor debit and that’s fine because the ATO have actually said you can do it.
“If you don’t reimburse, the regulator has said it is a deemed contribution.”
According to Johnson the arrangement it is not considered the SMSF has provided financial assistance to members despite giving money to them nor is it seen as a borrowing from the fund, but he advised the claim for expenses had to be made as soon as practicable.
“That’s the rule. The ATO states you should seek immediate reimbursement, so it should be sought as soon as you’ve set it up,” he pointed out.
“In that case you would write to the trustees and say ‘I want my money back as soon as the money rolls in’ and the trustees can give it to you and you’ve got no problems, which has been confirmed by the ATO.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason