The ATO has released updated guidance that reaffirms an individual can pay for the establishment costs of an SMSF and clarifies when these expenses can be considered as a member contribution to the fund.
In an update on its website relating to the setting up of an SMSF, the regulator noted an individual trustee can pay for establishment costs out of their own pocket or from the SMSF, and if the former was done, either before or after establishment, the fund can reimburse them.
“Regulation 5.02 of the Superannuation Industry (Supervision) Regulations 1994 allows the fund to charge eligible establishment costs against your super benefits,” it stated.
“If you want reimbursement, seek it as soon as the SMSF has available cash. The reimbursement does not count as financial assistance.”
In setting out that guidance, the ATO pointed out the grounds on which expenses paid by a trustee would be treated as a contribution related to any change in an SMSF’s capital position.
“If you pay the fund’s establishment costs before the SMSF legally exists, the payment is not a contribution. This applies whether or not the fund later reimburses you because the SMSF did not exist when you paid the costs,” it added.
“If you pay establishment costs after the SMSF is established and the fund reimburses you, the reimbursement is not a contribution because the fund’s capital does not increase.
“If you pay establishment costs after the SMSF is established and do not seek reimbursement, you must treat the amount as a contribution. This is because you have paid an expense of the SMSF and increased the fund’s capital.”
The guidance also highlighted there were limits on the costs that could be claimed by a member from the fund and the SMSF could not in turn claim any tax deductions for them.
“An SMSF can only charge establishment costs against a member’s benefits if the costs are reasonably considered to be expenses of the fund,” it said.
“These costs may include expenses for setting up the SMSF and its trustee structure, such as preparing the trust deed, establishing a corporate trustee, Australian Securities and Investments Commission registration fees, and legal, administrative or advice costs directly related to setting up the SMSF.
“Establishment costs are capital expenses. The SMSF cannot claim a deduction for these costs.”
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