Walking the SMSF expenses tightrope

10 Nov 2021

Lyn Formica

Head of SMSF Technical & Education Services

Before any costs are paid from an SMSF, trustees and their advisers should first ensure the cost is allowable under the superannuation law. Examples of costs which aren’t allowable include:

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Remunerating trustees for certain duties

Remunerating trustees (or the directors of a corporate trustee) for any duties or services provided in their capacity as trustee/director is not permitted. In LCR 2021/2, the ATO describes these duties or services as ones where an obligation had been imposed on the trustee or director by:

  • laws such as the Superannuation Industry (Supervision) Act and Regulations or the Corporations Act,
  • fiduciary conditions imposed under law (eg trust law), and
  • the governing rules of the fund.

Examples of trustee/director duties noted in LCR 2021/2 include accounting or bookkeeping services and preparation of the fund’s investment strategy. However there are many factors which can indicate that the person is not acting in their capacity as trustee/director but rather in their individual capacity, such as the use of equipment and other assets and performing the activities pursuant to a licence or qualification. 

Follow this link to download a copy of our flowchart with examples of duties an individual may commonly undertake in their capacity as trustee, when the SMSF will breach the superannuation law if the trustee/director receives remuneration from the fund and when the fund will have a NALI issue if the fund isn’t charged an arm’s length amount for the services.

Insurance

Death or disability insurance over the members where the SMSF is not the owner of the policy is also not permitted. This is because the fund will not benefit from the policy – if a successful claim is made, the proceeds would be paid to the policy owner not the fund.

Subscriptions

Subscriptions to newspapers, software, internet etc where the members have the potential to benefit outside the fund are also not allowable. Is the purpose of the subscription solely to provide benefits to members on their retirement? Or is the trustee deriving a personal current day benefit?

“Fair share” of costs

Paying any more than the fund’s “fair share” of a cost is also not allowed. For example, if an adviser provides services to various entities within a family group, the fund should only pay for the services provided to the fund (and must generally pay for those costs or the fund risks NALI).

We explore more examples of the sort of expenditure which is inappropriate for an SMSF to pay in our Education Bite “Common SMSF Outgoings”. 

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