Reader’s question: Our accountants have advised that both their accounting fee and the taxation department’s administration fee must be paid directly from our SMSF in addition to the prescribed minimum annual withdrawal amount.
We would prefer to pay these fees (about $3400) from funds outside the SMSF and so preserve the amounts within the fund. Our funds outside super are insufficient to attract any tax on the income they earn.
Therefore, and as the amount is not being used as a tax deduction, why should it be used to increase the minimum funds withdrawal when we would prefer to preserve cash within the SMSF.
This is a question that the ATO has attempted to answer in its tax ruling TR 2010/1, titled Income tax: superannuation contributions. In this, it tries to clarify the topic in black and white, but left it with shades of grey.
In effect the tax ruling defines “What is a contribution?” as being “anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general”. This can be done indirectly by “paying an amount to a third party for the benefit of the superannuation provider”.
In other words, it clearly defines your attempt to pay fees for your SMSF as a potential contribution, and this is what is prompting your accountants to warn you off doing so. (Presumably you are both drawing pensions, while not making any contributions into the fund, and your accountants know the fund has no accumulation account.)
However, the tax ruling does not specifically define whether it sees such a payment of SMSF fees to a third party as a concessional contribution.
Presumably if your family company is the trustee of your super fund and you pay the fees out of a company account, then this would be seen as a concessional contribution, as the company would claim a deduction, and anyway all employer contributions are automatically concessional. Thus, in a couple of years’ time, when the ATO catches up with its paperwork, you would eventually be found to have made an excess contribution and be taxed at 46.5 per cent.
Further, if you pay the fees personally and claim a deduction, then this too would undoubtedly be a concessional contribution.
But in your case, you are not planning to claim a deduction and so there is this grey area as to why it cannot be seen as a non-concessional contribution.
The problem is easily circumvented. I assume you are under 74 and not making a $150,000 non-concessional contribution into your super fund. So make a $3400 personal non-concessional contribution into an accumulation account within your SMSF, which can then use the money to pay the fees.
The only problem is that your accountants may charge you more for the extra work in handling both a pension and an accumulation account and, unless you keep the accounts separate, may also require an actuarial certificate. Have a chat with them before doing anything.
George Cochrane is a practising financial planner and a former magazine journalist.
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