It has been a while since we last wrote about self-managing your super. Self-managing super can be a lot of fun and, if done well, can be very cost-effective as well. So, this week, we thought we would take a quick look at expenses that an SMSF can and cannot pay for.
In general, an SMSF can pay for anything that is necessary for the running of the SMSF – and that is not also used for purposes outside of running an SMSF. Put simply, an expense needs to be for the exclusive use of the SMSF. Home internet, for example, might be used to send buy and sell orders to your SMSF’s broker. But you probably also use it for your Netflix subscription and your home phone line. This means your SMSF simply cannot pay your internet fee.
It does not matter if you can calculate the exact percentage of use of an item that is attributable to an SMSF. If there is any non-SMSF use, the expense can’t be paid by the SMSF. For example, if you calculate that you used 50 pieces from a 500-piece ream of paper, you still can’t claim 10% of the cost of the ream as an SMSF expense.
Common things that an SMSF can pay for
Some of the common things that an SMSF can pay for are:
- Accounting fees that relate solely to the SMSF (accountants assist here by separating any work they do for an SMSF from work they do for the individual members of the fund);
- Advice fees (ditto);
- Supervisory levy;
- Subscriptions and newsletters that relate solely to the management of the SMSF;
- Software used solely for the management of the SMSF, such as trading software;
- Expenses related to property held by the SMSF, such as rates, maintenance, property insurance, etc.
- ASIC fees.
A special category – Life Insurances
An SMSF can pay life insurance expenses for its members. The life insurances that can be paid for by the SMSF are:
- Death cover;
- Total and Permanent Disablement (TPD); and
- Income Protection.
Trauma cover cannot be held by an SMSF.
Something to be very careful with
It is important that anything that your SMSF will pay for is actually purchased in the name of the SMSF. This includes any life insurances. While it may at times be possible for you to pay an expense yourself and be reimbursed by the SMSF (if, for example, an expense can only be paid using a credit card), the actual name on any invoice should be the name of the SMSF. This has an obvious purpose: to make clear that the item that the SMSF is paying for was not in fact used by someone other than the SMSF.
Life insurances are particularly important here. If you are going to have your SMSF pay for insurance, then you must tell the insurer this when taking out the cover. This will ensure, among other things, that the policy documents make clear that the insurance is being taken out by the fund.
If in doubt, drop us a line…
If you have an SMSF and you are not sure whether you can use the fund to pay for something, give us a quick call and we can talk through the ins and outs of what can and can’t be claimed.