Can You Claim SMSF Setup Costs? What’s Deductible and What’s Not

One of the most common questions we hear from clients setting up a Self-Managed Super Fund is: “Can I claim the setup costs as a tax deduction?”

It’s a fair question. When you’re paying anywhere from $1,500 to $3,500 to establish an SMSF — including trust deeds, corporate trustee registration, and professional fees — it’s natural to want to recoup some of that through a tax deduction.

Unfortunately, the answer isn’t as straightforward as most people hope. The deductibility of SMSF costs comes down to one critical distinction that the ATO applies consistently: is the expense capital in nature, or is it an operating expense?

In this guide, we’ll break down exactly what you can and can’t claim, the relevant legislation, and some practical examples to help you understand where your SMSF expenses sit.

The General Rule: Capital vs Operating Expenses

The Income Tax Assessment Act 1997 (ITAA 1997) draws a clear line between two types of expenses:

• Capital expenses — costs incurred to establish, set up, or create an enduring structure or asset. These are generally not deductible.
• Revenue (operating) expenses — costs incurred in the ongoing operation of the fund to earn assessable income. These are generally deductible under section 8-1 of the ITAA 1997.

The ATO’s position, supported by Interpretative Decisions ID 2003/524 and ID 2003/525 and Taxation Ruling IT 2672, is that SMSF establishment costs are capital in nature. This is because an SMSF is not considered to be “carrying on a business” — even though it produces assessable income from investments and contributions. Since the fund isn’t a business, the five-year write-off for business capital costs under section 40-880 of the ITAA 1997 doesn’t apply either.

The bottom line: the classification of the expense — capital or revenue — matters far more than the timing of when it’s paid.

What’s NOT Deductible: Setup and Establishment Costs

The following costs are considered capital expenditure and cannot be claimed as a tax deduction by the SMSF:

Trust Deed Preparation

The cost of preparing the original SMSF trust deed is a capital expense. This is the foundational legal document that establishes the fund, and the ATO treats it as creating an enduring asset. Typical cost: $500–$1,200.

SMSF Establishment and Registration Fees

Professional fees charged to establish the fund structure, register with the ATO, obtain a TFN and ABN, and set up the initial compliance framework are all capital in nature. Typical cost: $800–$2,000.

Corporate Trustee Setup

If you choose a corporate trustee structure (which we generally recommend), the costs of registering the company with ASIC, preparing the company constitution, appointing directors, and setting up the corporate structure are capital expenses and not deductible by the fund. Typical cost: $600–$1,000.

LRBA Bare Trust Deed

If your SMSF borrows to purchase an asset under a Limited Recourse Borrowing Arrangement (LRBA), the costs of establishing the bare trust are not borrowing expenses under section 25-25 of the ITAA 1997. The ATO’s position is that these costs relate to establishing the arrangement for borrowing, not the borrowing itself. They are capital in nature and not deductible. However, they can be added to the cost base of the asset for Capital Gains Tax (CGT) purposes.

Trust Deed Amendments That Change the Fund’s Structure

Amendments that enlarge or significantly alter the scope of the trust’s activities — such as adding borrowing powers or changing to a corporate trustee — are capital in nature and not deductible.

What IS Deductible: Ongoing Operating Costs

Once your SMSF is up and running, many of the ongoing costs are deductible. These fall into several categories:

Administration and Management Fees

Day-to-day running costs of the fund are deductible under section 8-1 of the ITAA 1997. This includes costs for preparing trustee minutes, maintaining records, stationery, postage, and general administration.

Annual Accounting and Tax Return Preparation

The cost of preparing your SMSF’s annual financial statements and tax return is deductible under section 25-5 of the ITAA 1997 as a tax-related expense. This typically includes accounting fees, preparation of member statements, and lodgement with the ATO. Typical cost: $1,500–$3,500 per year.

Annual Audit Fees

All SMSFs must be audited annually by an approved SMSF auditor. The audit fee is deductible, though it may need to be apportioned if the fund has both accumulation and pension phase members (i.e., generates both assessable and exempt current pension income). Typical cost: $300–$800 per year.

ATO Supervisory Levy

The annual supervisory levy charged by the ATO is deductible under section 25-5 of the ITAA 1997. This is currently $259 per year for the 2025–26 financial year.

ASIC Annual Review Fee (Corporate Trustee)

For SMSFs with a corporate trustee, the annual ASIC review fee is deductible as an ongoing operating expense under section 8-1. The current fee for a special purpose SMSF trustee company is $63 per year. Note: the initial ASIC registration fee is capital and not deductible, but the annual review fee is.

Actuarial Certificates

If your SMSF has members in pension phase, you may need an actuarial certificate to determine the fund’s exempt current pension income (ECPI). The cost of obtaining this certificate is deductible. Typical cost: $200–$400.

Investment-Related Expenses

Ongoing costs related to managing the fund’s investments are generally deductible. This includes financial adviser retainer fees, investment platform fees, bank fees, interest on borrowings, and rental property expenses for SMSF-owned properties.

Insurance Premiums

Life insurance, Total and Permanent Disability (TPD), and income protection premiums paid by the SMSF for members are deductible under section 295-465 of the ITAA 1997. The deductible percentage varies: 100% for life insurance, and 67% for TPD (own occupation definition).

Trust Deed Amendments for Compliance Updates

Amendments to keep the trust deed current with changes in superannuation law — as opposed to structural changes — are generally deductible as ongoing operating expenses.

Special Cases: Borrowing Costs and Asset Acquisition

Borrowing Expenses (Section 25-25)

When your SMSF borrows money to purchase an investment asset (typically under an LRBA), the direct borrowing costs are deductible under section 25-25 of the ITAA 1997. These include:

• Loan establishment fees
• Lender’s mortgage insurance
• Valuation fees required by the lender
• Property and title search fees
• Mortgage registration and documentation fees
• Broker’s commission

Important rule: If total borrowing expenses exceed $100, they must be spread over five years or the term of the loan, whichever is shorter. If $100 or less, they’re fully deductible in the year incurred.

What’s not included: The cost of setting up the bare trust or holding trustee company for the LRBA is not a borrowing expense — it’s a capital cost (as discussed above).

Asset Acquisition Costs

Costs directly related to acquiring an investment asset — such as stamp duty on property, brokerage fees on shares, or legal conveyancing fees — are not deductible operating expenses. Instead, they form part of the asset’s cost base for CGT purposes, which reduces any future capital gain when the asset is sold.

Corporate Trustee Considerations

Choosing a corporate trustee structure has implications for expense deductibility:

Expense	Deductible?	Notes
Initial ASIC company registration	No	Capital expense
Company constitution preparation	No	Capital expense
Annual ASIC review fee ($63)	Yes	Ongoing operating expense
Director changes/updates	Generally yes	If maintaining existing structure
Company restructure costs	No	Capital if structural change

We generally recommend a corporate trustee structure for SMSFs due to the advantages of perpetual succession, limited liability, and simplified member changes. While the initial setup costs are slightly higher, the ongoing ASIC annual fee of $63 is modest and fully deductible.

Member vs Fund: Who Can Claim?

This is a crucial distinction that many people get wrong.

The Fund’s Deductions

The deductions discussed throughout this article are claimed by the SMSF in its annual tax return. They reduce the fund’s taxable income, which is taxed at 15% (or 0% for income supporting pensions).

What About the Member Personally?

Individual SMSF members cannot claim SMSF expenses as personal tax deductions. However, there are some important nuances:

Reimbursement of setup costs: If a member personally pays for the SMSF’s establishment costs before the fund has a bank account, the fund can reimburse the member once it is operational. The proper process is:

1. The member pays the setup costs and retains all invoices
2. The fund is established and receives contributions
3. The trustees pass a formal resolution authorising reimbursement
4. The fund transfers the reimbursement to the member
5. The transaction is recorded in the fund’s accounts

This reimbursement is not a deduction — it simply returns the member’s money. The cost remains capital and non-deductible to the fund.

Treating setup costs as a contribution: Alternatively, if the member chooses not to seek reimbursement, the amount paid can be treated as a personal non-concessional contribution to the fund. The member may then be able to claim a personal tax deduction by lodging a Notice of Intent to Claim a Deduction (under section 290-170 of the ITAA 1997), converting it to a concessional contribution. However, this counts towards the member’s concessional contribution cap ($30,000 for 2025–26) and will be taxed at 15% within the fund.

Warning: Getting this wrong can have serious consequences, including excess contribution penalties or audit contraventions.

Practical Examples

Example 1: Sarah Sets Up a New SMSF

Sarah establishes a new SMSF with a corporate trustee. Here’s what she pays:

Expense	Amount	Deductible to Fund?
Trust deed preparation	$990	No — capital
ASIC company registration	$576	No — capital
Company constitution	$350	No — capital
ATO registration (TFN/ABN)	$0	N/A — no cost
Professional establishment fee	$1,100	No — capital
Total setup costs	$3,016	$0 deductible

Sarah pays the $3,016 personally and is later reimbursed by the fund once it receives rollovers from her existing super. In its first year of operation, the fund incurs $2,800 in accounting/audit fees, a $259 ATO levy, and a $63 ASIC annual fee — all of which are deductible, saving the fund approximately $469 in tax (at the 15% fund tax rate).

Example 2: Mark and Lisa’s SMSF with an LRBA

Mark and Lisa’s existing SMSF borrows to purchase a $650,000 investment property under an LRBA. Their costs include:

Expense	Amount	Deductible?	How?
Bare trust deed	$880	No	Added to property cost base
Holding trustee company setup	$576	No	Capital
Loan establishment fee	$1,500	Yes	Spread over 5 years ($300/year)
Valuation fee	$450	Yes	Spread over 5 years ($90/year)
Lender’s mortgage insurance	$3,200	Yes	Spread over 5 years ($640/year)
Conveyancing/stamp duty	$28,000	No	Added to property cost base
Total	$34,606	$5,150 deductible	Over 5 years

The $5,150 in borrowing expenses provides a tax saving of approximately $155 per year to the fund over five years (at 15%).

Example 3: Raj’s Ongoing Annual Costs

Raj has an established SMSF with a corporate trustee, one member in accumulation phase, and investments in shares and a term deposit. His annual costs:

Expense	Amount	Deductible?
Annual accounting and tax return	$2,200	Yes
Annual audit fee	$500	Yes
ATO supervisory levy	$259	Yes
ASIC annual review fee	$63	Yes
Financial adviser retainer	$1,100	Yes
Bank fees	$120	Yes
Total annual costs	$4,242	$4,242 fully deductible

Raj’s fund saves $636 in tax each year on these deductible expenses (at 15%).

Key Takeaways

• SMSF setup and establishment costs are capital in nature and NOT deductible — this includes trust deeds, ASIC registration, corporate trustee setup, and LRBA bare trust deeds.
• Ongoing operating expenses ARE deductible — including annual accounting, audit fees, the ATO supervisory levy, ASIC annual fees, and investment management costs.
• Borrowing expenses are deductible under section 25-25 of the ITAA 1997, but must be spread over five years if they exceed $100 in total.
• The fund claims deductions, not the member — individual members cannot claim SMSF expenses on their personal tax returns.
• Members can be reimbursed for setup costs paid personally, but proper documentation and trustee resolutions are essential.
• Classification matters more than timing — whether an expense is deductible depends on its nature (capital vs revenue), not when it’s paid.
• Trust deed amendments may or may not be deductible depending on whether they maintain the existing structure (deductible) or create structural changes (capital).
• Keep meticulous records — invoices should be in the SMSF’s name, and expenses should be paid from the fund’s bank account wherever possible.

Frequently Asked Questions

Can I claim the cost of setting up my SMSF on my personal tax return?

No. SMSF setup costs are not deductible on your personal tax return. They are a capital expense of the fund. However, if you pay setup costs personally and don’t seek reimbursement from the fund, the amount may be treated as a contribution to your super, which could be claimed as a personal deduction (subject to contribution caps and lodging a Notice of Intent to Claim).

Are trust deed amendment costs deductible?

It depends on the nature of the amendment. Amendments to keep the trust deed updated with legislative changes or to facilitate ongoing operations are generally deductible. Amendments that create lasting structural changes — such as adding borrowing powers or changing the trustee structure — are capital and not deductible.

My SMSF is in full pension phase. Can it still claim deductions?

If your SMSF is fully in pension phase and all its income is exempt current pension income (ECPI), deductions may have limited benefit since there’s no taxable income to offset. However, tax-related expenses (like accounting and tax return preparation) are still deductible under section 25-5 without apportionment. Other expenses may need to be apportioned based on the fund’s assessable vs non-assessable income.

Can the SMSF pay me back for expenses I paid during setup?

Yes, the fund can reimburse you for legitimate setup costs once it’s operational. You’ll need to retain all invoices, pass a formal trustee resolution authorising the reimbursement, and record the transaction in the fund’s accounts. The reimbursement must be for actual setup costs — you can’t claim reimbursement for unrelated expenses.

Is it worth setting up a corporate trustee if the costs are higher?

In most cases, yes. While the initial setup cost is higher (typically $500–$1,000 more), a corporate trustee provides perpetual succession, limited liability protection, easier member changes, and the annual ASIC fee is only $63 (and deductible). The long-term benefits generally outweigh the additional upfront capital cost.

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Setting up an SMSF involves complex tax and superannuation rules. Getting the deductibility of expenses right from the start can save you headaches — and money — down the track. If you’re considering establishing an SMSF or want to ensure your existing fund is claiming every deduction it’s entitled to, contact the team at TaxServe for expert guidance tailored to your situation.

Disclaimer: This article provides general information only and does not constitute personal financial or tax advice. The information is current as at the 2025–26 financial year. You should consult a qualified tax professional before making decisions about your SMSF.