Are all ‘Fund’ expenses tax deductible?
Have you recently seen advertising inviting you to attend a conference or seminar to educate you about self-managed superannuation funds (SMSFs)? Your SMSF pays for the privilege of attending the ‘conference’ in Australia or overseas and you take a holiday as well, all at the fund’s expense.
You might want to think again and seek advice as to whether this is the type of expense your SMSF should be paying and claiming as a tax deduction.
While it may be possible for your SMSF to get a tax deduction for a range of activities, they must be authorised in the first place by your SMSF’s trust deed. Also, for any expense of your SMSF to be tax deductible it must be linked to income earning activities of the fund. No tax deduction is available if the expense is for private or domestic purposes – such as holiday or travel expenses for the trustee which are unrelated to the fund’s income earning activities. When it comes to expenses that an SMSF trustee incurs for the fund, care needs to be taken so that the expenses relate to the fund’s income and not for other purposes which are personal or related to the fund’s exempt income (normally its pension income).
Personal expenses may include part or all of the expenses relating to the trustees attending a conference which has both a personal element (such as sightseeing) and an element that relates to the income earning activities of the fund (a SMSF trustee education course). In cases where the fund pays the personal expenses of the trustees or the expenses are required to be divided between the personal expenses and SMSF income producing expenses there are a number of issues. The first is that the expenses which relate to personal expenses are not tax deductible for the SMSF but there may be wider implications for purposes of complying with the superannuation laws.
The superannuation law considers if the superannuation fund pays for or reimburses members or their relatives for private expenses then it breaches the rule that the SMSF must operate to solely provide retirement benefits for its members. These fund activities can also breach the rule which prohibits SMSF members or their relatives using the resources of the fund for private purposes.
Using the SMSF to pay for private activities in this way exposes the SMSF’s trustees to penalties for breaching the superannuation law. The fund may be at risk of having the SMSF treated as a non-complying superannuation fund resulting in the SMSF losing its essential tax concessions. Also, such a breach could result in the SMSF’s trustees being disqualified as trustees.
Unsure of whether fund expenses are tax deductible?
Marketing hype and fantastic offers can often lure SMSF trustees into making decisions that can impact their fund’s compliance. Before your SMSF ends up paying expenses that may not be tax deductible, seek advice from an SMSF specialist.
If you are considering participating in a conference to educate you on SMSFs that also includes a personal element such as an overseas or local holiday, seek guidance on whether your SMSF is allowed to pay for it. Call me for assistance or arrange a time that we can meet to discuss the impact on your SMSF.