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Tax specialists H&R Block have warned Australia’s self-managed super funds to be wary of tax traps in the ATO-regulated sector.
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H&R Block warns of SMSF tax traps
08 October 2014
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8 minute read
Regional director of H&R Block, Mr Frank Brass, said “The ATO, while initially hesitant about this market and its strong growth, is keen to ensure that the more complicated rules affecting them are complied with."
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“We have noticed that there is still confusion about the structure and what deductions can be claimed, especially when the SMSF has invested in rental property,” he added.
H&R Block said the ATO predicts that there will eventually be 1 million self-managed funds, with SMSFs now controlling more than $550 billion worth of assets, with $8.7 billion held by SMSFs under limited recourse borrowing arrangements.
In response to concerns for the sector, H&R Block has compiled a watch list for SMSFs in preparing a tax return:
Income
The income derived from a rental property and other assets like shares must remain in the SMSF account and cannot be transferred to another entity.
Deductions
An SMSF can only borrow money under limited circumstances, so you should check with your adviser before entering into such an arrangement.
The SMSF is only entitled to claim as a tax deduction those expenses that are incurred to keep an investment property in a good state of repair, not improvements. Remodelling kitchens or bathrooms, or adding a deck or pergola, is not immediately deductible, however this expenditure may be eligible for a deduction under the capital works provisions.
Other areas SMSF need to be aware of:
The fund must be audited by an independent auditor each year.
No personal expenses of the members can be paid by the fund.
No investments can be held for the enjoyment of members of the fund eg. artwork.
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