The ATO has released a private binding ruling (Ruling) on the deductibility of certain expenses incurred by a self managed superannuation fund (SMSF) trustee in managing the SMSF’s share portfolio. The share portfolio was initially managed by a broker, but after terminating the broker’s services one of the SMSF trustees took over. To improve the SMSF’s performance, the trustee took a course on trading in financial markets, paying the course fees personally. The trustee also subscribed to and personally paid for subscriptions to several industry publications. It was intended that the SMSF reimburse the trustee for these costs. The SMSF traded in warrant trades resulting in gains/losses (rather than deriving income).

In the Ruling, the ATO determined that the SMSF could not claim a deduction for reimbursement of these costs under section 8-1 of the Income Tax Assessment Act 1997 (ITAA97). Section 295-85 of the ITAA97 makes the capital gains tax (CGT) rules the primary code for calculating gains or losses realized by an SMSF and therefore the trading could not be on revenue account. The Ruling noted that some subscriptions for membership paid by a fund, for example to certain superannuation industry bodies, could be deductible. However, the Ruling stated (per TR 93/7), that this does not cover subscriptions to share trading publications. The expenditure by the SMSF in reimbursing the trustee for the course and subscriptions was found to be linked to the warrant trading and the derivation of gains/losses. As such, it was capital in nature, and not deductible by the SMSF.

As a tax ruling, the Ruling does not specifically deal with any superannuation law issues, such as whether the reimbursement could trigger the sole purpose test, be financial accommodation to a member or prohibited remuneration of an SMSF trustee. The Ruling does, however, highlight that the income/capital question can be just as important to SMSFs as it is to other types of taxpayers.

To discuss or for further information please contact:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au