Section C: Deductions and non-deductible expenses – item 12

What to include at Section C

Provide details of all expenses the SMSF incurred in 2022–23 at the appropriate questions.

Do not show cents for any amount you write in this section.

In the column headed Deductions, at the appropriate labels A1 to M1, list all expenses and allowances for which the SMSF can claim a deduction. For more information, see SMSF deductibility of expenses.

In the column headed Non-deductible expenses, at the appropriate labels A2 to L2) list all other expenses. The SMSF cannot claim a deduction for these expenses. They include:

• income tax paid (include it at label L2)
• most expenses incurred in earning exempt current pension income
• losses or outgoings that the SMSF incurred in deriving an amount that is excluded from assessable income because family trust distribution tax (FTDT) has been paid.

Do not include super benefits paid at any question in Section C.

Generally, SMSFs that derive exempt current pension income cannot claim a deduction for expenses to the extent they are incurred in deriving that exempt income. Such expenditure must be apportioned.

However, some expenditure is deductible and does not have to be apportioned even though the SMSF has exempt current pension income.

For more information, see:

• How expenses are treated when an SMSF has ECPI
• TR 2006/7 Income tax: special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income.

Expenses that relate to non-arm's length income

Expenses incurred in deriving non-arm's length income:

• are not included anywhere in Section C; such expenses reduce the amount you write at the non-arm's length income labels U1, U2 and U3 in Section B, except, that where non-arm’s length general expenses are actually incurred, they are included as a deduction at the appropriate label in Section C – Deductions and non-deductible expenses, to the extent that they are deductible.
• are included in Section C labels (labels A2 to L2 as appropriate) to the extent the expenses are non-deductible.

Expenses that relate to foreign income

Expenses incurred in deriving foreign income:

• are not included anywhere in Section C to the extent the expenses are deductible; such expenses reduce the amount you write at Section B, item 11 – label D Net foreign income
• are included in Section C (labels A2 to L2 as appropriate) to the extent the expenses are non-deductible.

Taxation of financial arrangements (TOFA)

If the TOFA rules apply to the SMSF, include expenses from financial arrangements subject to the TOFA rules at the appropriate question. Complete Section I Taxation of financial arrangements if you include an amount determined under the TOFA rules.

For more information, see Section I: Taxation of financial arrangements.

12 Deductions and non-deductible expenses

In this section, complete labels:

• A1 and A2 Interest expenses within Australia
• A1 Deductible interest expenses within Australia
• A2 Non-deductible interest expenses within Australia
• B1 and B2 Interest expenses overseas
• B1 Deductible interest expenses overseas
• B2 Non-deductible interest expenses overseas
• D1 and D2 Capital works expenditure
• D1 Deductible capital works expenditure
• D2 Non-deductible capital works expenditure
• E1 and E2 Decline in value of depreciating assets
• E1 Deductible decline in value of depreciating assets
• E2 Non-deductible decline in value of depreciating assets
• F1 and F2 Insurance premiums – members
• F1 Deductible insurance premiums – members
• F2 Non-deductible insurance premiums – members
• H1 Deductible SMSF auditor fee
• H2 Non-deductible SMSF auditor fee
• I1 and I2 Investment expenses
• I1 Deductible investment expenses
• I2 Non-deductible investment expenses
• J1 and J2 Management and administration expenses
• J1 Deductible management and administration expenses
• J2 Non-deductible management and administration expenses
• U1 and U2 Forestry managed investment scheme expense
• U1 Deductible forestry managed investment scheme expenses
• U2 Non-deductible forestry managed investment scheme expenses
• L1 and L2 Other amounts
• L1 Deductible other amounts
• L2 Non-deductible other amounts
• M1 Tax losses deducted
• N Total deductions
• Y Total non-deductible expenses
• O Taxable income or loss

A1 and A2 Interest expenses within Australia

Did the SMSF incur interest expenses on money borrowed from an Australian source?

No	Leave labels A1 and A2 blank. Go to labels B1 and B2.
Yes	Read on.

Write at labels A1 and A2, as required, the amount of interest that the SMSF incurred in 2022–23 on money borrowed from an Australian source.

A1 Deductible interest expenses within Australia

Write at label A1 the amount of deductible interest expenses incurred on borrowings from sources within Australia.

For example, interest expenses incurred on borrowings are deductible to the extent the borrowed money is used to:

• acquire assets for the purpose of earning assessable income
• finance operations for the purpose of earning assessable income, or
• meet current expenses incurred for the purpose of earning assessable income.

Do not include at label A1 interest expenses (or any part of such expenses) that relate to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF paid retirement phase income stream benefits to a member, refer to Exempt current pension income before you claim a deduction for the SMSF's interest expenses incurred on borrowings from Australian sources.

A2 Non-deductible interest expenses within Australia

Write at label A2 the amount of interest expenses that the SMSF incurred on borrowings from Australian sources that is not deductible. This includes an amount of interest expense to the extent it is incurred for the purposes of earning exempt income.

B1 and B2 Interest expenses overseas

Did the SMSF incur interest expenses on money borrowed from an overseas source?

No	Leave labels B1 and B2 blank. Go to labels D1 and D2.
Yes	Read on.

Write at labels B1 and B2, as required, the amount of interest that the SMSF incurred in 2022–23 on money borrowed from an overseas source.

B1 Deductible interest expenses overseas

Write at label B1 the amount of deductible interest expenses incurred on borrowings from overseas sources.

For example, interest expenses incurred on borrowings from overseas sources are deductible to the extent the borrowed money is used to:

• acquire assets for the purpose of earning assessable income
• finance operations for the purposes of earning assessable income, or
• meet current expenses incurred for the purposes of earning assessable income.

Do not include at label B1 interest expenses (or any part of such expenses) that relate to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF paid retirement phase income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the SMSF's interest expenses overseas.

B2 Non-deductible interest expenses overseas

Write at label B2 the amount of interest expenses that the SMSF incurred on borrowings from overseas sources that is not deductible. This includes an amount of interest expense to the extent the expense is incurred for the purposes of earning exempt income.

PAYG withholding

SMSFs must remit to us the amount of tax (withholding tax) they have withheld, or should have withheld, from interest paid or payable to:

• non-residents, or
• residents, where the resident's interest is derived through an overseas branch.

If the SMSF is required to have withheld an amount from interest paid, or is required to withhold from interest payable, the SMSF must register for PAYG withholding and lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report.

If the SMSF paid interest to non-residents, keep a record of the following:

• name and address of recipients
• amount of interest paid or credited
• amount of tax withheld
• the date that the tax withheld was remitted to us.

For more information, see Record-keeping requirements.

D1 and D2 Capital works expenditure

Capital works include the construction, extension, alteration and improvement of any capital asset (such as buildings, dams and roads) and structural improvements such as fences, retaining walls and sealed driveways.

Does the SMSF have deductible or non-deductible capital works expenditure?

No	Leave labels D1 and D2 blank. Go to labels E1 and E2.
Yes	Read on.

Write at labels D1 and D2, as required, the amount that the SMSF calculated in 2022–23 for capital works expenditure.

Do not include at labels D1 or D2 capital works expenditure that you can include at another question in Section C.

D1 Deductible capital works expenditure

Write at label D1 the amount of deductible capital works expenditure. For more information about amounts that are deductible, see Appendix 1: Capital works expenditure.

Do not include at label D1 capital works expenditure (or any part of such expenditure) that relates to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF paid retirement phase income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for capital works expenditure.

D2 Non-deductible capital works expenditure

Write at label D2 the amount of capital works expenditure that is not deductible. For example, if the SMSF uses the capital works area for the purposes of earning exempt income, such as exempt current pension income.

 

E1 and E2 Decline in value of depreciating assets

Depreciating assets are capital assets, such as cars, computers or machinery. Their cost is not generally an expense at the time of purchase, but their value may decline over their effective life. This decline in value may be a deduction or a non-deductible expense.

Did the SMSF's depreciating assets decline in value?

No	Leave labels E1 and E2 blank. Go to labels F1 and F2.
Yes	Read on.

Write at labels E1 and E2, as required, the amount by which the SMSF's depreciating asset declined in value during 2022–23.

If you are uncertain whether an asset is a depreciating asset or whether you can claim a deduction, see Guide to depreciating assets 2023.

E1 Deductible decline in value of depreciating assets

Write at label E1 the deductible amount for the decline in value of the SMSF's depreciating assets, for example, the decline in value of a depreciating asset that the SMSF uses for the purposes of earning assessable income.

Do not include at label E1 an amount for the decline in value of an asset to the extent the amount is taken into account in working out:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF pays retirement phase income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the amount the SMSF's depreciating assets declined in value.

For more information, see Guide to depreciating assets 2023.

You can work out your capital allowance deductions by using the Depreciation and capital allowances tool (DCAT).

From 1 July 2017, you are generally not entitled to a deduction for decline in value of certain second-hand depreciating assets in your residential property:

• which you entered into a contract to acquire, or which you otherwise acquired, at or after 7:30 pm on 9 May 2017
• which you used, or had installed ready for use, for any private purpose in 2016–17 or earlier, and for which you were not entitled to a deduction for a decline in value in 2016–17.

You may be entitled for these deductions if you are using your residential rental property in carrying on a business (including the business of property investing) or another exception applies.

Residential rental property is residential premises you use to provide residential accommodation for the purpose of producing assessable income.

For more information, see:

• Rental properties 2023
• Guide to depreciating assets 2023

E2 Non-deductible decline in value of depreciating assets

Write at label E2 the amount for the decline in value of the SMSF's depreciating assets that is not deductible. This includes an amount for the decline in value of a depreciating asset to the extent the asset is used for the purposes of earning exempt income, such as exempt current pension income.

 

F1 and F2 Insurance premiums – members

Did the SMSF have insurance to cover its members?

No	Leave labels F1 and F2 blank. Go to label H1.
Yes	Read on.

Write at labels F1 and F2, as required, the amount of insurance premiums incurred by the SMSF for 2022–23 for insurance policies that provide cover to enable benefits to be paid for members.

F1 Deductible insurance premiums – members

Write at label F1 the amount that is deductible for insurance premiums to provide benefits upon the death, existence of a terminal medical condition or temporary or permanent disability of a member:

If in 2022–23 the SMSF purchased or provided any of the following types of insurance, read on to find out what amount the SMSF is able to deduct:

• Whole of life policies
• Endowment policies
• Total and permanent disability (TPD) cover
• Temporary disability
• Self-insurance.

A complying SMSF may instead choose to deduct an amount calculated using the formula in Section 295-470 of the ITAA 1997 rather than claiming a deduction for insurance premiums paid, or an amount under the self-insurance provisions.

If the SMSF has exempt current pension income this does not affect the amount the SMSF is entitled to deduct for insurance premiums. For more information, see How expenses are treated when an SMSF has ECPI?

Since 1 July 2014, an SMSF trustee can no longer enter into insurance policies to provide benefits that are not consistent with the conditions of release in the Superannuation Industry (Supervision) Regulations 1994 (SISR) for death, terminal medical condition, permanent incapacity and temporary incapacity.

However, this does not apply to the continued provision of insured benefits to members who joined the SMSF, and were covered by that insured benefit, before 1 July 2014 or to the provision of benefits under an approval that has been granted. (For more information see regulation 4.07D of the SISRExternal Link).

F2 Non-deductible insurance premiums – members

Write at label F2, the amount that is not deductible for insurance premiums.

Non-deductible insurance premiums include:

• any insurance premiums paid by a non-complying SMSF
• payments for insurance that covers events other than death, the existence of a terminal medical condition, or temporary or permanent disability (for example, funeral insurance).

For more information, see Subdivision 295-G of the Income Tax Assessment Act 1997.

Whole of life policies

A complying SMSF can deduct 30% of the premium for a whole of life policy if all the individuals whose lives are insured are members of the SMSF. For more information see Section 295-480 of the ITAA 1997 and ATO ID 2009/100.

If the whole of life policy is bundled with other types of insurance, the SMSF can deduct 30% of the part of the insurance premium that is specified in the policy as being for a distinct part of the policy that would have been a whole of life policy if it had been a separate policy and all of the individuals whose lives are insured are members of the SMSF.

Endowment policies

A complying SMSF can deduct 10% of a premium for an endowment policy if all the individuals whose lives are insured are members of the SMSF. For more information on what an 'endowment policy' is for these purposes, see Section 295-480 of the ITAA 1997.

If the endowment policy is bundled with other types of insurance, the SMSF can deduct 10% of the part of the insurance premium that is specified in the policy as being for a distinct part of the policy that would have been an endowment policy if it had been a separate policy and all of the individuals whose lives are insured are members of the SMSF.

Total and permanent disability (TPD) cover

TPD any occupation

'TPD any occupation' means insurance against the member suffering an illness or injury that is likely to result in the member’s permanent inability to work in any job for which the member is reasonably qualified by education, training or experience.

A complying SMSF can deduct 100% of insurance premiums for 'TPD any occupation' cover for its members as shown in Table 6.

TPD own occupation

'TPD own occupation' means insurance against the member suffering an illness or injury that is likely to result in the member’s permanent inability to work in the member’s own occupation (other than in a substantially reduced capacity).

A complying SMSF can deduct a portion of insurance premiums for 'TPD own occupation' cover for its members, as shown in Table 6.

Actuary certificate

An actuarial certificate is not required to be obtained in order to deduct:

• the premium, or a proportion of the premium, as shown in Table 6, or
• a percentage of a part of a bundled insurance premium that is specified as being for a policy that would have been deductible if it had been a separate policy.

An actuarial certificate is required to be obtained in order to deduct:

• a proportion other than that specified in Table 6, or
• an amount for a bundled insurance premium where no amount has been specified for insurance to provide superannuation benefits upon the death, existence of a terminal medical condition or disability of a member.

If an actuarial certificate is required it must be obtained before the date of lodgment of the annual return.

Table 6 shows the proportions of insurance premiums for TPD cover that are deductible under item 6 of the table in subsection 295-465(1) of the ITAA 1997 as specified in regulation 295-465.01 of the Income Tax Assessment Regulations 1997.

For information about deductions for premiums for total and permanent disability cover, see TR 2012/6.

Table 6: Proportions of insurance premiums for TPD cover that are deductible

The SMSF can deduct:	Percentage
TPD any occupation cover.	100%
TPD any occupation cover with one or more of the following inclusions: activities of daily living cognitive loss loss of limb domestic (home) duties.	100%
TPD own occupation cover.	67%
TPD own occupation cover with one or more of the following inclusions: activities of daily living cognitive loss loss of limb domestic (home) duties.	67%
TPD own occupation cover bundled with death (life) cover.	80%
TPD own occupation cover bundled with death (life) cover with one or more of the following inclusions: activities of daily living cognitive loss loss of limb domestic (home) duties.	80%

Temporary disability

A complying SMSF may also deduct premiums on insurance policies to replace members' income during periods of their temporary disability.

Self-insurance

An SMSF cannot enter into any arrangement to provide self-insurance for a member. Even where the SMSF was providing self-insurance for a member on or before 1 July 2013, the arrangement must have ended before 1 July 2016. For more information see Regulation 4.07EExternal Link of Superannuation Industry (Supervision) Regulations 1994.

H1 and H2 SMSF auditor fee

Did the SMSF incur auditor's fees?

No	Write 0 (zero) at label H1. Go to labels I1 and I2.
Yes	Read on.

Write at labels H1 and H2, as required, the amount of auditor fees that the SMSF incurred in 2022–23.

Do not include tax agent fees or other management and administration expenses at labels H1 or H2. Show these at labels J1 or J2 Management and administration expenses.

H1 Deductible SMSF auditor fee

Write at label H1 the amount of SMSF auditor fees that is deductible.

If the SMSF did not incur deductible SMSF auditor fees, write 0 (zero) at label H1.

Do not include at label H1 any part of the SMSF's auditor fees that relate to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF pays retirement phase superannuation income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the SMSF's auditor fees.

H2 Non-deductible SMSF auditor fee

Write at label H2 the amount for auditor fees that is not deductible. This includes auditor fees to the extent the fees are incurred for the purposes of earning exempt income, such as exempt current pension income.

If the SMSF did not incur non-deductible SMSF auditor fees, write 0 (zero) at label H2.

 

I1 and I2 Investment expenses

Did the SMSF incur expenses of a revenue nature in managing or maintaining its investments?

No	Leave labels I1 and I2 blank. Go to labels J1 and J2.
Yes	Read on.

Write at labels I1 and I2, as required, the amount of expenses (of a revenue nature) that the SMSF incurred in managing or maintaining its investments.

I1 Deductible investment expenses

Write at label I1 the deductible amount of investment expenses.

The exact nature of the investment related expenses is critical in determining deductibility. Examples of deductible investment related expenses include:

• interest expenses
• ongoing management fees or retainers paid to investment advisers
• costs of servicing and managing an investment portfolio such as bank fees, rental property expenses, brokerage fees
• the cost of advice to change the mix of investments, whether by the original or a new investment adviser, provided it does not amount to a new financial plan.

Note: if the advice covers other matters or relates in part to investments that do not produce assessable income, only a proportion of the fee is deductible.

For more information, see Investment-related expenses.

Do not include at label I1 investment expenses (or any part of such expenses) that relate to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

There are special rules for the deductibility of expenses relating to investments in pooled superannuation trusts and life insurance policies (see Investments in pooled superannuation trusts (PSTs) and life insurance policies).

If the SMSF pays retirement phase superannuation income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the SMSF's investment expenses.

I2 Non-deductible investment expenses

Write at label I2 the amount of investment expenses that are not deductible. This includes an amount of investment expense to the extent the expense is incurred for the purposes of earning exempt income, such as exempt current pension income.

 

Investments in pooled superannuation trusts (PSTs) and life insurance policies

Complying SMSFs can claim deductions for expenses they incurred to acquire, hold or dispose of:

• units in a PST
• life insurance policies issued by life insurance companies
• interests in trusts whose assets consist wholly of such life insurance policies.

The SMSF can claim the expenditure as a deduction if the expenditure would qualify for deduction under the provisions of the ITAA 1936 or the ITAA 1997 if any profits, gains or bonuses received from the investments listed above that are not assessable income were instead included in assessable income.

Do not include amounts at labels I1 or I2 if you can more appropriately include them at labels F1 or F2.

The SMSF cannot deduct amounts for investment charges that the PST or life insurance company deducts from the gross contributions transferred to it from the SMSF. These charges are not deductible because they are capital expenditure (since they reduce the amount of the investment).

For more information, see Section 295-100 of the Income Tax Assessment Act 1997.

J1 and J2 Management and administration expenses

Did the SMSF incur management or administration expenses?

No	Leave labels J1 and J2 blank. Go to labels U1 and U2.
Yes	Read on.

Write at labels J1 and J2, as required, the amount of management and administration expenses (of a revenue nature) that the SMSF incurred in 2022–23.

Do not include at labels J1 or J2:

• investment management expenses (include these at labels I1 or I2 Investment expenses)
• SMSF auditor fees (include these at labels H1 or H2 SMSF auditor fees).

J1 Deductible management and administration expenses

Write at label J1 the amount of deductible management and administration expenses.

The SMSF can claim a deduction for management and administration expenses incurred:

• for the purposes of earning assessable income  
  • such as the cost of collecting contributions (Australian SMSFs can claim a deduction whether or not the contribution is assessable, foreign SMSFs cannot claim a deduction)
• that were tax-related (as described in Section 25-5 of the ITAA 1997), such as  
  • tax agent fees
  • SMSF supervisory levy
  • general interest charge
  • shortfall interest charge.

Do not include at label J1 management and administration expenses (or any part of such expenses) that relate to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF pays retirement phase superannuation income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the SMSF's management and administration expenses.

J2 Non-deductible management and administration expenses

Write at label J2 the amount of management and administration expenses that are not deductible.

Non-deductible management and administration expenses include:

• fees for setting up the SMSF
• legal fees incurred to amend a trust deed to include a new member
• late lodgment penalties
• most expenses incurred in earning income that is exempt, such as exempt current pension income.

U1 and U2 Forestry managed investment scheme expense

Did the SMSF incur expenses for a forestry managed investment scheme (FMIS)?

No	Leave labels U1 and U2 blank. Go to labels L1 and L2.
Yes	Read on.

Write at labels U1 and U2, as required, the amount of forestry managed investment scheme expenses that the SMSF incurred in 2022–23.

U1 Deductible forestry managed investment scheme expenses

Write at label U1 the total amount of deductible payments made under an FMIS.

Do not include at label U1 payments (or any part of such payments) that relate to earning:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

You can read more about calculating deductible FMIS payments at Appendix 2: Forestry managed investment schemes.

If the SMSF pays retirement phase superannuation income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the SMSF's FMIS expenses.

U2 Non-deductible forestry managed investment scheme expenses

Write at label U2 the total amount of payments made under an FMIS that are not deductible The SMSF cannot claim a deduction for certain excluded payments. For more information see Appendix 2: Forestry managed investment schemes.

The SMSF cannot claim a deduction for payments if the income from the FMIS is exempt income, such as exempt current pension income.

For information on the SMSF's eligibility to claim deductions, if the SMSF incurred expenses to do with a collapsed agribusiness managed investment scheme, then see Collapse and restructure of agribusiness managed investment schemes – participant information.

 

L1 and L2 Other amounts

Did the SMSF incur other expenses?

No	Leave labels L1 and L2 blank. Go to label M1.
Yes	Read on.

Write at labels L1 and L2, as required:

• the amount of expenses incurred by the SMSF in 2022–23 that do not fall into any other category in Section C. You will need to refer to:
• Table 7: 'Other amounts' categories and codes which specifically identifies, and provides codes for, 9 categories of other amounts, and
• the description of each category below Table 7.
• any amount of non-arm’s length general expense actually incurred (that gave rise to the ‘Twice the difference approach’) that does not fall in any other category in Section C to the extent that is deductible.

Don't include at labels L1 or L2:

• expenses that are more appropriately included elsewhere in Section C
• super benefits paid (do not include these anywhere in Section C).

L1 Deductible other amounts

Write at label L1 the total of any other deductible expenses that are not included at any other question.

Don't include at label L1 expenses (or any part of expenses) that relate to earning:

• foreign income (see Expenses that relate to foreign income)

non-arm's length income (see Expenses that relate to non-arm's length income) – except any amount of non-arm’s length general expense actually incurred that gave rise to the ‘Twice the difference approach’, that does not fall in any other category in Section C and to the extent that is deductible.

If the SMSF pays retirement phase superannuation income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the expenses that you include at label L1.

You claim the small business skills and training boost or the small business technology investment boost at label L1.

If you have already claimed your ordinary deduction for eligible bonus expenditure at another label, claim an amount equal to 20% of that expenditure at label L1 to account for your bonus deduction.

If you have not already claimed your ordinary deduction for eligible bonus expenditure at another label, claim a deduction amount equal to 120% of your expenditure to account for your bonus deduction.

L2 Non-deductible other amounts

Write at label L2 the total of any other expenses that the SMSF incurred that are not deductible and that are not included at any other question. For example, include income tax paid by the SMSF at label L2 as it is not deductible at all.

Also include an amount for any other expenses (that are not included at any other question) to the extent those expenses are incurred for the purposes of earning exempt income, such as exempt current pension income.

Code boxes

You must print a code letter in the code box to the right of:

• label L1 if you write an amount at label L1
• label L2 if you write an amount at label L2.

Print the code letter from Table 7 that best describes the largest amount you include at each of labels L1 and L2.

Table 7: 'Other amounts' categories and codes

Code letter	Amounts in respect of
A	Balancing adjustment amounts
B	Contribution that is a fringe benefit
C	Exclusion of personal contributions
E	Environmental protection activities (EPA) expenditure
F	Forex losses
I	Deduction relating to listed investment company (LIC) capital gain amount
N	Deduction relating to foreign non-assessable non-exempt income
R	Return of contributions by a non-complying SMSF
T	Taxation of financial arrangements (TOFA) amounts
O	Other amounts not listed above

Balancing adjustment amounts (code A)

If the SMSF ceases to hold or to use a depreciating asset, you need to work out a balancing adjustment amount. Include balancing adjustment losses at labels L1 or L2.

For more information, see Guide to depreciating assets 2023.

Contribution that is a fringe benefit (code B)

A 'contribution that is a fringe benefit' is a contribution that is:

• included in the SMSF's assessable income as an assessable contribution that is a fringe benefit, and
• taxed as a fringe benefit in the hands of the contributor.

The SMSF can deduct a contribution that is a fringe benefit in the income year in which the contribution is included in assessable income. The deduction is included at label L1.

A contribution made for an employee to a complying SMSF is not a fringe benefit.

For more information, see Section 295-490 of the ITAA 1997.

Exclusion of personal contributions (code C)

'Exclusion of personal contributions' refers to situations where an SMSF:

• received (from a member) during 2022–23 a valid variation of the Notice of intent to claim a deduction for personal super contributions that reduced the amount of personal contributions that were assessable income of the SMSF in a previous income year, and
• did not choose to amend the SMSF annual return for that earlier income year in which it included the contributions as assessable income.

In this situation the SMSF may claim a deduction by including an amount at label L1 for 'exclusion of personal contributions'. The SMSF's assessable income for 2022–23 is reduced by the amount its assessable income in a previous income year is overstated, following a valid variation notice being received from the member.

Do not include an amount at label L1 for 'exclusion of personal contributions' if a member varies a Notice of intent to claim a deduction for personal super contributions for personal super contributions made by the member in 2022–23 (include the reduced amount at R2 Assessable personal contributions).

For more information, see Notice of intent to claim or vary a deduction for personal super contributions.

Environmental protection activities (EPA) expenditure (code E)

A deduction is allowed for certain capital expenditure incurred for the sole or dominant purpose of:

• preventing, fighting or remedying pollution of the environment resulting from an earning activity, or the site of an earning activity, or
• treating, cleaning up, removing or storing waste resulting from an earning activity, or the site of an earning activity.

Include at L1 a deduction for EPA expenditure.

Expenditure that forms part of the cost of a depreciating asset is not deductible as expenditure on EPA if a deduction is available for the decline in value of the asset.

You can write off expenditure incurred on or after 19 August 1992 on certain earthworks constructed as a result of carrying out EPA at the rate of 2.5% per annum under the provisions for capital works expenditure.

For more information, see:

• Guide to depreciating assets 2023
• Section 40-755 of the ITAA 1997.

Forex losses (code F)

If the SMSF has any deductible or non-deductible foreign exchange losses of a revenue nature that have not been shown at any other question in Section C, include the amount of the losses at labels L1 or L2.

See Foreign exchange gains and losses to work out the SMSF's forex losses, if any.

Deduction relating to listed investment company (LIC) capital gain amount (code I)

A listed investment company (LIC) can pay a dividend to an SMSF that includes a LIC capital gain amount (shown in the LIC’s dividend statement). A complying SMSF can claim a deduction of one-third of that LIC capital gain amount. An Australian resident non-complying SMSF that is a trust can claim a deduction of one-half of that LIC capital gain amount.

Include at label L1 allowable deductions for a LIC capital gain amount.

For more information, see Subdivision 115-D of the Income Tax Assessment Act 1997.

Deduction relating to foreign non-assessable non-exempt income (code N)

Certain expenses relating to foreign non-assessable non-exempt income (that is, tax-free income) are allowable deductions against the SMSF’s assessable income if the expenses incurred are a cost in relation to certain debt interests.

Include at label L1 a deduction for such expenses.

For SMSFs, the relevant non-assessable non-exempt income is foreign income covered by sections 23AI or 23AK of the ITAA 1936.

For more information, see:

• Section 25-90 of the ITAA 1997
• Sections 23AI or 23AK of the ITAA 1936 if the amount is attributed income.

Return of contributions by non-complying SMSF (code R)

An SMSF that has been non-complying since 1 July 1988, or since it was established if this is later, can deduct at label L1 an amount which it pays to an entity (the receiving entity), so far as:

• the amount reasonably represents the direct or indirect return of  
  • a contribution for which the receiving entity or another entity has deducted or can deduct an amount, or
  • earnings on such a contribution, and
• the receiving entity includes the amount in its assessable income under Section 290-100 of the ITAA 1997.

The amount can be deducted by the SMSF in the income year in which it is included in the receiving entity's assessable income.

For more information, see Section 295-490 of the ITAA 1997.

Taxation of financial arrangements (TOFA) amounts (code T)

If the TOFA rules apply to calculate an assessable gain or deductible loss on the SMSF’s financial arrangements, include at label L1 any deductible losses relating to financial arrangements. Show at label L2 any TOFA losses for which a deduction could not be claimed. TOFA amounts that have been included elsewhere should not be included here.

Complete Section I: Taxation of financial arrangements if what you write at labels L1 or L2 includes an amount determined under the TOFA rules.

Other amounts not listed above (code O)

If the amount that you include at labels L1 or L2 is not one of the types of deduction listed above for codes A, B, C, E, F, I, N, R or T, then use code O for 'other'.

M1 Tax losses deducted

Does the SMSF have a tax loss from an earlier income year?

No	Leave label M1 blank. Go to label N.
Yes	Read on.

Write at label M1 the tax losses from an earlier income year that the SMSF is claiming. The SMSF can claim tax losses only to the extent that its total assessable income exceeds total deductions (other than tax losses).

The trust loss legislation in Schedule 2F to the ITAA 1936 affects the deductibility of prior year losses by all trusts that are not excepted trusts as defined in Section 272-100 of Schedule 2F to the ITAA 1936, such as non-complying super funds.

You may need to complete and attach a Losses schedule 2023 to the SMSF's annual return. For more information, see Losses schedule instructions 2023.

Tax losses are not the same as ‘capital losses’ which may result from a capital gains tax event. Do not include net capital losses at label M1. Capital losses from prior years can be applied against the current year's capital gains at Section B, item 11 – label A Net capital gain or carried forward to later income years. See Section E, item 14 – label V Net capital losses carried forward to later income years.

Do include foreign tax losses from prior years at label M1.

Do not include at label M1 tax losses that relate to non-arm's length income. Tax losses that relate to non-arm's length income can only be applied against non-arm's length income. If the SMSF has carried forward a loss from a non-arm's length transaction in a prior year, use the loss to reduce the amount that you write at the non-arm's length income questions in Section B, item 11 – labels U1, U2 and U3.

Tax losses and tax exempt income

If the SMSF had Net exempt income in 2022–23, you must first deduct the SMSF’s tax losses from earlier income years from the SMSF’s net exempt income (Section 36-15 of the ITAA 1997).

If tax losses from earlier years remain after the net exempt income has been reduced to zero, write the remaining tax losses at label M1 to be deducted from the SMSF's assessable income (but only to the extent such losses are necessary to reduce the SMSF's taxable income to zero).

For more information, see Exempt current pension income.

 

N Total deductions

Add all the deductions from labels A1 to M1.

Write the total at label N.

Y Total non-deductible expenses

Add all the non-deductible expenses from labels A2 to L2.

Write the total at label Y.

O Taxable income or loss

Subtract the amount at label N Total deductions from the amount in Section B, item 11 – label V Total assessable income. If label V is a loss, add labels N and V.

Write the result at label O. If the result is:

• zero, you must write 0
• a loss  
  • print L in the box at the right of the total
  • include that total at Section E, item 14 – label U Tax losses carried forward to later income years.

Label O is mandatory. If you leave label O blank, you will have specified a zero amount.

Z Total SMSF expenses

Add the amounts at labels N Total deductions and Y Total non-deductible expenses.

Write the total at label Z.

Continue to: Section D: Income tax calculation statement – item 13