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  • How expenses are treated when a SMSF has ECPI

    Generally, expenses which a SMSF incurs in deriving ECPI cannot be claimed anywhere on the SMSF annual return. This means that these expenses must not be included as part of the deductions claimed in the SMSF annual return.

    Expenses incurred in gaining or producing exempt or non-assessable non-exempt income or expenses of a capital, private or domestic nature are not allowable deductions.

    Generally, if an expense is incurred which relates to both ECPI and assessable income, the expense must be apportioned so that only the proportion of the expense for the production of assessable income is claimed.

    If the fund is 100% in retirement phase, generally expenses should not be deducted as they will be incurred in gaining ECPI.

    Certain specific deductions can be claimed in full, whether they provide exempt or assessable income – for example, tax-related expenses such as the supervisory levy and death and disability premiums.

    Do not include management and administration expenses in the amount claimed at the ECPI label or investment expenses label.

    See also:

    • TR 93/17 Income tax: income tax deductions available to superannuation funds

    Example 6

    AXY SMSF earned $60,000 in interest and paid $500 in bank fees. Eighty percent of the fund's assets were held to provide for current pension liabilities.

    This would be shown on the SMSF annual return as follows:

    Section B, Item 11 Income - Example 6

    Field

    Value

    Gross interest (label C)

    $60,000

    Assessable contributions (label R)

    $0

    *Exempt current pension income (label Y)

    $48,000 (80% of $60,000)

    Total assessable income (label V)

    $12,000

    Section C, Item 12 Deductions and non-deductible expenses - Example 6

    Field

    Value

    Interest expenses within Australia (label A1)(see note 6)

    $100 (20% of $500)

    Total deductions (label N)

    $100

    Taxable income or loss (label O)

    $11,900

    Total non-deductible expenses (label Y)

    $400

    Total SMSF expenses (label Z)

    $500

    *also include exempt current pension income in Section A label 10A of the SMSF annual return

    Note 6: The remaining bank fees of $400 (80% of $500) cannot be claimed as a deduction, because they were incurred in earning the ECPI.

    End of example
      Last modified: 15 Aug 2018QC 21546