Are SMSF fees tax deductible?

Under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA), SMSF fees are tax deductible if they relate to gaining assessable income or are necessary for carrying on a business to produce such income. Since SMSFs usually do not conduct a business, we focus on the first part of this provision. Expenses incurred to produce exempt income, such as income from retirement phase pensions (ECPI), are not tax deductible. Expenses must be apportioned if a fund has both pension and accumulation balances. Capital or private nature expenses are also not deductible. Some expenses may be specifically deemed deductible or not under other ITAA sections, overriding general deduction provisions.

Hint – The SIS legislation should also be considered to ensure the expense can be paid by the SMSF.

Expenses Establishing an SMSF

Typical expenses incurred when setting up an SMSF include:

Expense	Tax Deductible	Capital and not tax Deductible	Comment
Establishing the initial Trust Deed	No	Yes
Incorporation of a company to act as trustee	No	Yes
Accounting fees in establishing an SMSF including the associated paperwork	No	Yes
Financial Planning fees for advice provided to establish an SMSF	No	Yes	Private expense and not an SMSF expense
Establishment of an Initial Investment Strategy	No	Yes

 

Unlike a company, which can claim blackhole expenses relating to the establishment and winding up of a business which otherwise are not tax deductible, an SMSF typically does not conduct business activities. Therefore, it is not eligible to deduct these expenses over a five-year period.

Operating SMSF Expenses

Management and administration expenses incurred in running the day-to-day operations of an SMSF are tax deductible under the general deductible tax provision of section 8-1 of the ITAA.

Expenses normally deductible under the general deduction provisions are apportioned when the fund is in partial pension mode or not deductible at all if the fund is in full pension mode for the whole year.

Typical operating expenses include the following:

Expense	Fully tax deductible under general tax provisions	Capital and not deductible
Accounting fees i.e. preparation of annual statements excluding costs in relation to the tax affairs of the SMSF (deductible under a specific tax provision)	Yes
Administration Fees i.e. preparation of trustee minutes, update member & fund records, organisation of paperwork for pension establishment	Yes
Benefit payments to members	Yes
Audit fees	Yes
Annual ASIC fee for a corporate trustee	Yes
Valuation of assets as required by SIS	Yes
Amending a trust deed	Yes, when the purpose is to reflect SIS legislation changes or in relation to making the on-going running of the fund more efficient and do not amount to a restructuring of the fund.	Yes, when the amendment is capital in nature i.e. enabling the trustee structure to be changed
Change of trustee from individual to a corporate trustee or vice versa	No	Yes as it is changing the structure of the SMSF and is capital in nature
The cost of incorporation when changing to a corporate trustee	No	Yes, as it is changing the structure of the SMSF and is capital in nature
Adding/removing a director of a corporate trustee	No	Yes, as it is changing the structure of the SMSF and is capital in nature

Specific Tax Related Expenses

Expenses in relation to complying with or managing the tax affairs and obligations of an SMSF is specifically tax deductible under section 25-5 of the ITAA. The expense is tax deductible and is not apportioned if a fund is in part pension mode. In full pension mode, tax-related expenses are deductible but offset against exempt pension income, generally resulting in no carry-forward taxable loss. The ATO has additional information about these on their website.

The following are typical tax related expenses:

• Preparation and lodgement of SMSF annual return.
• Preparation & lodgement of BAS, IAS, PAYGI, TBAR.
• ATO supervisory levy.
• Actuarial costs in relation to calculating the fund’s ECPI.
• Costs in relation to an ATO tax audit.
• General interest charge (GIC) or shortfall interest charge (SIC) incurred prior to 1 July 2025 is tax deductible.  However, GIC or SIC incurred on or after 1 July 2025 is non-deductible, regardless of whether the debt relates to an earlier income year.
• Advice by a recognised tax adviser i.e. Registered tax agent, registered BAS agent, a legal practitioner about the operation of a Commonwealth law relating to taxation.

Other SMSF expenses specifically tax deductible or not tax deductible

Expense	ITAA provision	Tax deductible	Apportioned if fund is in part pension mode	Not deductible if fund is in 100% pension mode
Depreciation or capital allowances	Div 40	Yes and apportioned over the effective life of the asset	Yes	Yes
Capital Works (Building write-off)	Div 43	Yes and generally apportioned over 40 years since the property was first developed and held for use	Yes	Yes
Premiums paid for life insurance, terminal illness or permanent or temporary disability	S295-465 (1)	Yes	No	No *
Penalties i.e. late lodgement penalties in relation to ATO, ASIC, land tax or council rates	s26-5	No	N/A	N/A

*similar to tax related expenses in full pension mode, the premiums are deductible but offset against exempt pension income, generally resulting in no carry-forward taxable loss.

Investment related Expenses

The actual cost of the investment is not tax deductible.  Capital works deduction may be allowable on a property and depreciation on assets used in an investment property may be depreciable over its effective life.

General investment related expenses include:

Expense	ITAA Provision	Tax deductible	Capital or incurred too early to be deductible	Apportionment required if fund in partial pension mode
Initial financial advice for an investment strategy or a new investment	N/A	No	Yes	N/A
Ongoing financial advice in relation to assets such as shares or unit trusts which are income -producing i.e. dividend and trust income.	s8-1	Yes	No	Yes
Interest incurred under a LRBA or bank interest	s8-1	Yes	N/A	Yes
Preparation, registering and stamping a lease agreement or assignment or surrender of a lease	s25-20	Yes	N/A	Yes
Expenses incurred in managing an income producing asset i.e. rental expenses such as agent’s fees, council and water rates, repairs & maintenance, landlord’s insurance	s8-1	Yes	N/A	Yes
Insurance and storage costs of assets such as pink diamonds, bullion and collectables	s8-1	Yes	N/A	Yes
Subscriptions or educational courses to enable a trustee to make investment choices	s8-1	Yes *	May be too early and not tax deductible**	Yes

* Provided there is no personal use and the expense leads to producing assessable income. It may be difficult to claim 100% as a deductible expense if an SMSF trustee/member undertakes a course in relation to property, share trading or cryptocurrency where the member also holds personal investments in the same areas.   These also should be reasonable costs in relation to the investments made.

**Where a SMSF trustee decides to undertake an education program to start investing into property, share trading, cryptocurrency trading etc. the cost of the course may not be tax deductible as it is too early to be connected with producing assessable income.

Limited Recourse Borrowing Arrangement (LRBA) – borrowing costs

When a SMSF uses a LRBA/Bare Trust to acquire an asset, the borrowing costs are specifically allowed under section 25-25 of the ITAA.

Expense	ITAA provision	Period of the deduction	Apportioned if the fund is in part pension mode	Capital and not tax deductible
Loan establishment fees	s25-25	Written off over 5 years from the date of the expense or less if the loan is for a shorter period	Yes
Relevant searches, preparing and filing mortgage documents or valuations required by the lender	s25-25	Written off over 5 years or less	Yes
Lender’s mortgage insurance	s25-25	Written off over 5 years or less	Yes
Costs incurred in establishing the bare/holding trust arrangement as required under the LRBA	N/A	N/A	N/A	Yes – unable to write-off under the blackhole provisions unless the fund is carrying on a business which is not generally the case for an SMSF.
Cost incurred in changing a trust deed to allow a fund to borrow money under a LRBA	N/A	N/A	N/A	Yes – it I s capital in nature as it changes the structure of the fund.

Wind-up Fees

Fees relating to an SMSF Wind Up can include the following:

Expense	Tax Deductible	Capital & not tax deductible	Apportioned
Financial advice to wind-up a SMSF	No	Yes	If the advice includes tax advice on the transfer or redemption of an asset the expense applicable to this portion of the advice may be tax deductible
Expenses such as marketing costs incurred in selling assets such as property	No	Yes and included in the cost base of the asset	N/A
Taxation advice or attending to the tax affairs of the SMSF such as preparing the final BAS and final tax return	Yes	No	N/A
Administration and management fees of an SMSF in the year it is being wound-up	Yes	No	N/A
Winding up the sole purpose corporate trustee	No	Yes	N/A