What SMSF establishment fees are we talking about?
In this context, we’re talking about costs like:
- Setting up a new company to be the trustee of your SMSF (both the legal fees and the registration fees paid to ASIC – usually this is all in one bill from your lawyer, accountant or fund administrator),
- the fund’s trust deed, and
- legal, administrative or advice costs that are directly related to setting up the SMSF. Note this doesn’t extend as far as advice to start an SMSF in the first place – this is advice to you (personally) not your SMSF. But your SMSF can pay for advice on how to invest the money after it’s established, even if the advice is actually given before the SMSF is in place.
What normally happens with these costs?
Usually, people setting up an SMSF pay these costs before the fund even exists. The lawyer, fund administrator or accountant setting up the fund will send an invoice for the establishment of a trustee company and trust deed at the time the services are provided. At Heffron, for example, we issue an invoice and take payment when you complete our form to establish your SMSF.
You would typically pay the invoice personally and then choose whether you simply bear the cost or reimburse yourself later once there is money in the fund.
In the normal course of events (ie, throughout most of your SMSF’s life) if you pay costs that “belong” to your SMSF, and you don’t get reimbursed, you have to treat this amount as a contribution. You’ve saved the fund an expense and so you’ve indirectly increased its value – that’s a contribution. But the situation is different for fund establishment costs.
Establishment costs incurred before the SMSF exists
But when it comes to establishment costs, if they’re charged before the fund even exists, they’re not an amount the SMSF has to pay. That means even if you don’t reimburse yourself, you don’t have to treat the amount as a contribution.
.. are treated differently to establishment costs incurred after the SMSF exists
It would be quite different if the invoice for these costs was raised after the SMSF existed. Let’s say, for example, you asked your accountant to set up your SMSF in July. In August, you and other members started adding your employer contributions to the fund. Your accountant sent you a bill for their set up services in September.
This time, you would have to either:
- pay the bill from the SMSF directly,
- pay it personally and get reimbursed, or
- pay it personally, not get reimbursed, and record the amount as a personal contribution made by you (or whoever paid the bill).
The key is that this time, the invoice was raised after the fund had been set up rather than before.
Can my SMSF claim a tax deduction for these set up costs? Can I?
Unfortunately, there’s no tax deduction no matter who pays the fees.
SMSF establishment costs reimbursement – is there a deadline?
Technically no. But generally any expense you pay for an SMSF should be reimbursed “promptly” if you’re going to do so.
This is particularly important if you’re getting reimbursed for set up costs that were invoiced after the fund existed. In this case, if you don’t get reimbursed by the end of the financial year, you’ll have to recognise a contribution in that year.
We’d always recommend any reimbursement for establishment costs happens as soon as the SMSF has enough money.
How do I get reimbursed for SMSF set up costs?
You can transfer money from your SMSF’s bank account to your own. Just make sure you provide a copy of the invoice to your fund accountant and transfer the exact amount.
