Expenses of a Self Managed Super Fund (SMSF)

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By Brett Griffiths

Brett Griffiths

There is an important undercurrent with being responsible for the running of a Self Managed Superannuation Fund (SMSF) – the fund must be able to “wash its own face” – to cover its own expenses.

If a member/trustee pays for a fund expense on behalf of the fund, and if the member/trustee does not seek reimbursement for this expense immediately, the amount will be treated as a contribution to the fund.

Australian Tax Office (ATO) Taxation Ruling TR 2010/1 Income tax: superannuation contributions states a superannuation contribution is ‘anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all members in general’.

The meaning of contribution is therefore wider than just a direct payment of money or an in-specie transfer of an asset to the SMSF.

For instance, the capital of an SMSF may be increased by something of value provided directly or indirectly in a number of ways, including:

  • Personally paying an invoice to a third-party and thereby benefiting the SMSF.
    • Example; payment of the SMSF’s ASIC fees or accounting fees by a member from the member’s own bank account;
  • Creating rights in the SMSF.
    • Example; a right to receive distributions of income or capital from a discretionary trust; and
  • Shifting value to an asset owned by the SMSF.
    • Example; an improvement to an SMSF asset where the SMSF has not paid for that improvement

Therefore, whenever the capital of an SMSF may be increased the SMSF trustee should consider whether a contribution has been made and, if so, check that the contributions caps in that year are not exceeded. Otherwise, excess contributions tax is payable.

To further complicate the matter, a member may not be eligible to actually make a contribution to the fund due to their age and/or working status.

If the trustee/member does not seek immediate reimbursement, but does so at a point in time in the future, then the fund has technically borrowed from the member to cover the expenses. This type of borrowing is not permitted, and is considered a breach of the legislation.

Summary

Just adopt the KIST (Keep it Simple Trustee) principle, pay all expenses of the fund from the fund! Should the auditor report a breach to the ATO, the ATO may issue fines and penalties to the trustees which have to be paid personally.

Want to know more?

If you have any further questions about SMSF expenses, please contact Brett Griffiths our Superannuation Advisory Director for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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