On 21 October 2026, the Australian Taxation Office published updated guidance on the categories of deductible expenses for complying Self-Managed Superannuation Funds (SMSFs) under Section 295-485 of the Income Tax Assessment Act 1997 (ITAA 1997). The guidance delineates between expenses incurred in gaining or producing assessable income (fully deductible), expenses of a capital or private nature (non-deductible), and expenses apportioned under the ‘necessary connection’ test. Deductible items include: actuarial fees for segmenting pension and accumulation phases, audit fees (mandatory under Section 35C SISA), investment management and advisory fees, legal expenses defending fund compliance, insurance premiums for death/disability cover (where proceeds are assessable), and the ATO supervisory levy. Non-deductible items include: trustee personal travel, costs of establishing the SMSF (capital), fines and penalties, and expenses relating to exempt current pension income (ECPI) where the segregated method is used. The guidance also addresses the apportionment methodology for mixed-purpose expenses (e.g., accounting fees covering both tax and financial advice) and the substantiation requirements for ATO review.
Key Takeaways
- ECPI Apportionment Critical: Where an SMSF uses the proportionate method for ECPI, all deductible expenses must be apportioned using the actuarial certificate percentage; incorrect apportionment is a leading audit adjustment.
- Insurance Premium Deductibility: Premiums for death and TPD insurance are deductible only to the extent the benefit would be assessable income in the fund (i.e., not for pension-phase members where benefits are tax-free).
- Establishment Costs Non-Deductible: Legal and advisory fees to set up the SMSF trust deed, corporate trustee, and initial investment strategy are capital in nature (Section 25-25 ITAA 1997) and must not be claimed as Section 295-485 deductions.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement