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How expenses are treated when an SMSF has ECPI

Generally expenses which a SMSF incurs can't be claimed on the SMSF annual return.

Last updated 2 July 2024

Expenses

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. For example, 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.

For more information, see TR 93/17Opens in a new window Income tax: income tax deductions available to superannuation funds.

Example: SMSF expenses

AXY SMSF earned $60,000 in interest and paid $500 in bank fees. 80% 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

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

 

 

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