ATO reminds trustees that investment strategy and deed need to align
Before paying a particular expense from an SMSF, it is important to ensure the payment is in accordance with a properly formulated investment strategy and allowed under the trust deed and superannuation laws, the ATO said.
The tax office said the tax deductibility of most expenses incurred by an SMSF is determined under the general deduction provision in section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
These rules allow an SMSF to claim a tax deduction for expenses that are either incurred to earn the fund’s assessable income or necessarily incurred in running a business for the purpose of gaining or producing assessable income, and not related to personal or capital matters.
The general deductibility rules do not apply where a specific deduction provision applies.
An SMSF can’t claim more than one deduction for the same cost. If two or more tax provisions allow deductions for the same cost, the fund can deduct only under the most appropriate provision.
If an expense is deductible under the general deduction provisions, and the fund has both accumulation and pension phase members, the expense may need to be apportioned.
This will determine the amount the fund can deduct. If an expense is deductible under one of the specific deduction provisions, then the wording of that provision will indicate whether the expense must be apportioned and on what basis.
There are some specific deductions that can be claimed in full or in part, while others will require apportionment.
Specific deduction provisions that apply to SMSFs include managing the tax affairs of the SMSF or complying with an obligation imposed on the SMSF that relates to its tax affairs, for example, the SMSF Supervisory Levy (section 25-5 of the ITAA 1997).
Additionally, death, total and permanent disability, terminal illness and income protection premiums to the extent specified in the relevant law (section 295-465 of the ITAA 1997) can also be included under specific deduction provisions.
The ATO said as a general rule, an SMSF trustee can claim the fund’s expenses in the year the trustee incurs them. However, deductions for the decline in value of certain depreciating assets such as plant and equipment are claimed over the effective life of the asset and not when the trustee incurs the expenditure.
Operating expenses incurred by an SMSF are mostly deductible under the general deduction provision. The types of operating expenses that are typically deductible under the general deduction provision include management and administration fees, audit fees, and Australian Securities & Investments Commission (ASIC) annual fee.
Some legal expenses are also covered by specific deduction provisions. For example, legal expenses incurred in complying with income tax obligations are covered under section 25-5 of the ITAA 1997.
Legal expenses that are not covered by a specific provision are generally deductible under the general deduction provision. This is except when they are incurred in deriving non-assessable income or are capital, private or domestic in nature.
By: Keeli Cambourne | October 28, 2026 | smsfadviser.com
