30/11/2017

Can Martha and Bob claim a tax deduction for their air fare to the Gold Coast for their holiday because their SMSF just so happens to have an investment unit up there?

Purchasing property within a self managed superannuation fund under a limited recourse borrowing arrangement is becoming increasingly prevalent; however, determining what an SMSF can and cannot claim for, especially when it comes to travel expenses incurred by a member of the fund is important due to the recent changes surrounding this area of law.

Prior to the 2017-2018 Budget, the existing law allowed deductions for travel relating to income produced or gained from residential investment properties.

In the 2017-2018 Budget, the Government announced that it intended to deny all travel deductions relating to inspecting, maintaining, or collecting rent for a residential investment property from 1 July 2017.

As a result of these changes, travel expenditure incurred by individual investors inspecting and maintaining residential investment properties is no longer deductible. However, expenses incurred by an investor to engage third parties, such as real estate agents, to provide any necessary property management services will remain deductible.
 
The Government’s reasoning for the disallowance of the deduction of travel expenses for residential rental properties was examined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017.
 
The position taken was that by disallowing travel expenditure incurred by individual investors it would combat the ‘widespread abuse around excessive travel expense claims relating to residential investment properties’ in order to ‘improve the integrity of the tax by addressing the systematic risk of excessive and incorrect claims for travel expenses associated with residential investment properties’.

An SMSF may continue to deduct travel expenditure if the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income.  Note that travel expenses can still be claimed by other investment vehicles, such as:

•    a corporate tax entity;
•    superannuation plan that is not a self-managed superannuation fund;
•    a public unit trust;
•    a managed investment trust; or
•    a unit trust or a partnership, all of the members of which are entities of a type listed above.

Most importantly, when considering if it is appropriate for the fund to pay a particular expense, it is important to ensure the payment is in accordance with a properly formulated investment strategy, allowed under your trust deed and the super laws.

For further information on what types of expenses may be deductible by the SMSF, or to discuss whether your trust deed has the relevant power for your SMSF to enter into a limited recourse borrowing arrangement, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.