SMSF property expense claims carry risks
SMSF trustees seeking to charge expenses to their fund relating to a property owned by the SMSF should be aware that such costs are only tax-deductible for commercial property and could put the trustee at risk of a breach of the sole purpose test, according to SMSF Alliance.
SMSF Alliance principal David Busoli told SMSF Adviser the group had received several calls from advisers and trustees in relation to the claiming of expenses around property in their fund, but that the circumstances in which expenses could be claimed as a deduction were fairly narrow.
“Some trustees feel if they travel at all for their super fund, whether it be to residential or commercial property or even to exotic course locations, they can claim that as a tax deduction,” Mr Busoli said.
“Even if they could claim that, I would caution them against it because the objective of super is to get as much in as possible, so unless you are maxing out your contribution caps, why would you be seeking to take money out?”
In an email update on Wednesday, Mr Busoli clarified that deductions for travel expenses relating to residential property held by SMSFs had not been available since 1 July 2018, but that the fund could still pay out those expenses if they were reasonable.
Deductions were still available for expenses relating to commercial property, but the ATO was taking a keen eye to the associated costs claimed for travel relating to property inspections.
“The ATO has cracked down on them because there was a situation where people were spending an inordinate amount of money going to exotic locations ostensibly for a training course, and in those cases the ATO has disallowed such claims,” Mr Busoli said.
“Reasonable costs of travel for commercial property isn’t a problem if you have to travel to deal with a property-related inspection, but even then it’s got to be reasonable. Expenses incurred in a trip that happens to occur at grand final time and involves a week’s accommodation and meals is not on.”
Mr Busoli added that if expenses were not directly related to the property, there was a risk of a breach of the sole purpose test, as such expenses could be flagged in the SMSF’s audit and scrutinised by the ATO.