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  • How expenses are treated when an SMSF has ECPI

    Generally, expenses which an SMSF incurs in deriving ECPI can't be claimed on the SMSF annual return. This means 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 aren't 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 shouldn't be deducted as they will be incurred in gaining ECPI.

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

    Don't 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

    Note that you should also include ECPI in Section A label 10A of the SMSF annual return.

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

    End of example
      Last modified: 04 Oct 2019QC 21546