Insights – SMSF’s and Travel Expenses
Self-Managed Superannuation Funds (SMSFs) are an increasingly popular option for Australians looking to take control and manage their retirement future.
Part of this management may involve travel to inspect or maintain property or attend investment presentations and AGMs for the fund’s share portfolio.
SMSFs are allowed to claim deductions for these travel expenses under specific circumstances. In this article, we’ll explore the circumstances and the rules that govern whether travel expenses can be paid from your SMSF and claimed as a deduction.
SIS Act Compliance and the Sole Purpose Test
Before diving into the specifics of travel expense deductions, it is crucial to ensure that the SMSF complies with the super legislations central rule – the Sole Purpose Test.
The sole purpose test dictates that all activities undertaken by the SMSF must align with its sole purpose of providing retirement benefits to its members. Therefore, for any travel costs to be allowed to be paid from an SMSF the over-whelming predominant reason for the expense must be for the betterment of the SMSF and not for an alternate / private purpose e.g. a holiday.
Breaching the Sole Purpose test holds severe consequences and as such this may dis-incentivise most travel to seminars and conferences in desirable locations due to the potential for harsh interpretation of Trustee’s intentions.
Provided the expense passes the reasonable person test (the sniff test) and it is incurred to provide for retirement. Then there are different rules based on the type of investment-related activity.
Since 1 July 2017, travel expenses (motor vehicle expenses, taxi or hire car costs, airfares, public transport costs, and any meals or accommodation) incurred in inspection and maintenance of the SMSF’s residential investment properties cannot be claimed as deduction. This change applies to all residential property owners, not just SMSF’s.
The expenses can be paid from the SMSF however they are not deductible.
Travel expenses to inspection and maintenance of the SMSF’s commercial investment properties can be claimed as deduction and can be paid from the SMSF.
Expenses associated with servicing the SMSF’s investment portfolio; attending investment-related seminars or company meetings, can be paid from the SMSF and are deductible where the sole purpose of the travel relates to the share investment.
In many cases, travel expenses may involve both personal and SMSF-related elements. It’s important to determine the portion of the expenses that are attributable to the SMSF activities. Only the SMSF-related portion can be paid from the SMSF & claimed as a tax deduction.
Where the travel was predominantly for SMSF-related purposes, then the airfares are payable by the SMSF and deductible. This would be where any non-SMSF related activities (sightseeing etc) are incidental to the trip.
However, if the SMSF-related activity (inspection, conference etc) is a minor part of the trip and it is predominantly a private holiday, then none of the airfares are claimable and the expense should not be paid from the SMSF.
Accommodation and Meals
Accommodation and meals which are directly associated with the SMSF-related activity can be paid for by the SMSF and are deductible.
7 nights accommodation and only 5 of those nights relate to the SMSF, then only 5 nights are payable from the SMSF and are deductible, all other expenses are not deductible.
It is vital to maintain proper records (receipts, invoices, and itineraries) of all travel expenses claimed as deductions. This documentation is the evidence that shows the connection between the travel and the SMSF-related investment activity.
Seek Professional Advice
Given the complexity of the topic and the ever-changing tax and superannuation legislation, it is recommended that before paying any travel expenses from your SMSF that you seek professional advice from a qualified superannuation advisor. They can provide guidance on your specific circumstances.
Self-Managed Superannuation Funds may be able to pay for and claim a deduction for travel expenses when they are incurred for the purposes of managing SMSF investments.
However, the expense must comply with the sole purpose test, have proper records and be for the primary purpose of SMSF related activities.
Seeking professional advice prior to any travel is essential to ensure compliance and maximize the benefits of travel expense deductions within an SMSF.
How Can Alto Help?
Alto can help you determine if your travel costs may be deductible and give you confidence that you are complying with all ATO requirements.
Author: Scott Coghlan