Can travel be a deductible expense to the SMSF?

Recently, it has come to our attention that there are several education promoters offering courses to be held in overseas locations such as Aspen, Phuket, Bali etc. The issue at hand, can the trustee attend such a course, have a holiday at the same time as being educated about running their SMSF, then charge the costs back to the fund, where the fund then claims them as a tax deduction. These promoters encourage the trustee to charge the whole cost of attending to the SMSF.

As auditors, we encourage trustees to seek ongoing education when it comes to administering their self managed superannuation fund. Our concern is that the advice they could be receiving is lacking and they should not charge such education / travel expenses back to the fund and claim the tax deduction.

It is our opinion that trustees need to be informed that such activities to be paid by the fund must first be authorised by the fund, refer to the SMSF trust deed. Following this, ensure payment is allowed under superannuation law, pay close attention to SIS Regulation 5.01 (1).

We draw the trustees attention to the sole purpose test. This is the best way to get them thinking about whether any decision they make in relation to their SMSF is for the sole purpose of providing retirement benefits to its members. Personal expenses, that provide a current benefit to the trustee, such as a trip, a new computer or training course should not be claimed as self managed super fund deduction. When we go to perform an audit, items like this raise a red flag.

AS the trustee incurs an expenses on behalf of the SMSF, they must be mindful that the expense relates to the funds income, they are not expenses of a personal nature and in particular not related to the fund’s exempt income (usually pension income). This creates difficulties and the waters can become muddied when trying to divide expense between personal/exempt income/ income related. Key concern is that personal expenses are not tax deductible, but by charging them back to the fund you will also be breaching superannuation laws.

Consider, that where the SMSF reimburses members or their relatives for private expenses, it could be in breach of the sole purpose test and of the SIS Act provisions that prohibit members from using the fund resources for private purposes. By using the SMSF to pay for private activities, SMSF trustees are exposed to penalties for breaching superannuation law. The key danger is that the fund may become non-complying resulting in the fund losing essential tax concessions. During the course of an audit, if we discovered such action we would have to report this as a contravention. Upon the ATO investigating they may disqualify the trustees.

DISCLAIMER: The above is general advice only, you should not act on this advice without consulting a professional adviser to discuss your personal circumstances.